Ruble rumble: Currency gains ground after Tuesday trauma

The Russian currency remains volatile Wednesday after it suffered its own ‘Black Tuesday’ losing about 20 percent. The ruble strengthened to 61 rubles per 1 USD, before settling near 62 at market close in Moscow.

MONITOR RUBLE TRADE HERE

After the Central Bank of Russia (CBR) intervened early Tuesday morning, the ruble jumped six percent, briefly trading at 60.51 to the dollar. Before that, the currency, which lost more than 20 percent on Tuesday, continued to dip in early trading.

EMPIRE STRIKES BACK #Ruble #Intervention pic.twitter.com/ujQFWOwD5G
— Russian Market (@russian_market) December 17, 2014

On Monday the Central Bank of Russia (CBR) spent about $2 billion in currency interventions, the regulator said. This compares to about $774 million spent during all of November.

The Russian financial system is in turmoil with volatility high amid deregulation and uncertainty among traders.

The Russian currency has been tumbling since the CBR abandoned its long-time regulation policy and left the ruble to free float. This week the ruble experienced its worst plunge, with officials saying the situation is as the 2008 financial crisis.

On Tuesday the dollar hit 80 rubles, while the euro passed the 100-ruble benchmark, although they dropped back to 68 and 85 rubles respectively by the end of trading.

In attempts to break the trend the CBR has hiked the key interest rate several times over the past few months. Back in March it was 5.5 percent, but was increased to 17 percent on Monday night – a change of 6.5 percentage points from the previous level setjust one week ago.

Still the bank refuses to impose stricter regulation of currency markets like going back to massive market interventions or forcing exporting companies to sell a share of their profits in the market. Taking these actions “was not discussed in any way,” according to Economy Minister Aleksey Ulyukaev, who took part in an emergency meeting with government members and central bank officials on Tuesday evening.

There’s a lot of emoting currently among the traders which influences the market balance, but technically the exchange infrastructure is functioning properly, ensuring freedom of currency convertibility, Andrey Braginsky, the managing director of communications for Moscow Exchange, told RT.

“We saw some major swings in the rate of national currency – very emotional for traders and even for observers," he said. "The markets and rates somewhat stabilized today after the Ministry of Finance said they would release some reserves into markets so we even see some strengthening of the ruble.”

The US tech giant Apple Inc. was quick to react, saying Tuesday it is suspending online sales in Russia due to the rapid descent of the ruble.

"Our online store in Russia is currently unavailable while we review pricing," Apple public relations representative Alan Hely told Bloomberg.

This is the second currency-related move by Apple since the ruble started its free fall. In November the company raised the price of the iPhone 6 by 25 percent in Russia.

Another warning came from the MSCI investment company that said Russia may be excluded from the MSCI Emerging Markets Index amid the recent economic distress.

It said Russia may be taken off the index if the Russian government chooses to start controlling capital flows or currency transactions, as "freedom of capital inflows and outflows is one of the main classification criteria for an emerging market."

So far Russia has said it will not introduce any form of capital controls.

The Russian government believes the ruble is currently undervalued and will rebound soon, as the rush to sell the currency eases and companies start buying it to pay taxes later this month.

The weakening of the ruble comes as a result of several factors, including the dropping price of oil, Western sanctions against Russia that made it much harder for Russian financial system to obtain foreign credit, and a panic that hit traders amid the market volatility.