The Bank of Russia is once again doing the heavy lifting across the currency markets this Moscow afternoon, after earlier this week, parliamentary representatives from the Russian Duma blamed the central bank for failing to defend the value of the Russian ruble.
After spending $700 million to defend the ruble on Monday when the Russian currency fell more than seven percent during the course of the day, currency markets are whispering that the Bank of Russia is back in the market today after yesterday’s five percent decline.
This morning the USD/RUB currency pair hit a new all time high of 54.85 RUB per USD, which triggered another round of intervention to stem the decline. The Russian ruble has lost close to 6% this week at the time of publication.
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The central bank has spent more than $70 billion of its foreign currency reserves since the start of the year in order to prop up the Russian ruble, however despite this effort, over the past 12 months, the US dollar has rallied more than 60% against it.
Credit default swaps insuring on Russian debt default have sky-rocketed during the past couple of weeks as the markets are starting to ponder how Russia will pay its dues on more than $720 billion worth of debt. More than $200 billion of it is held by Russian privately and publicly owned banks, albeit admittedly most of it is long term.
That said, the long term prospects for the tandem of oil and the Russian ruble remain murky at best. Global oil production is outpacing the rise of demand as worries about the Chinese economy are spilling over to other emerging markets in South East Asia–while the country is virtually warranted to enter into a recession next year even according to government forecasts.