Russia sold $11.3bn to support ruble on 'Black Monday'

Russia on Wednesday revealed it sold a record $11.3 billion in foreign currency to support the ruble on March 3, during a "Black Monday" of panic selling over the crisis in Ukraine which analysts say rattled the Kremlin. The Russian central bank sold foreign currency to buy rubles and prevent the Russian currency from falling further in value, after the market reacted with shock to parliamentary approval for President Vladimir Putin's request to allow military action in Ukraine. Russian news agencies said that the amount of foreign currency sold by the central bank on Monday was by far the most since records began, beating the previous record from September 2011 by about five times. With Putin also finally speaking out to moderate the boiling tensions Tuesday, the intervention helped the ruble recover most of its losses by Wednesday afternoon. "Investors reacted rather nervously to the increase of political uncertainty in Ukraine," Russia's central bank chief Elvira Nabiullina said at a meeting with Putin Wednesday, using the characteristic understatement of a central banker. She confirmed the figure of over $11 billion that was published earlier in a regular data release by the central bank. But she said interventions had been far lower on Tuesday, with the bank selling $300 million of foreign currency. Russia's total foreign currency reserves amounted to $493.4 billion as of February 21, meaning that the central bank sold just over two percent of its reserves in one day of trading on March 3. The intervention appears to have been successful, with the ruble rate now stabilising after "Black Monday", when the Russian equity markets also tumbled over 10 percent. - 'The ruble is undervalued' - In late trade Wednesday, the ruble strengthened to trade at 35.99 to the dollar and 49.44 to the euro. At the close of trade in Moscow on Monday, the ruble had been trading at record low values of 36.44 to the dollar and 50.22 to the euro. The mood on markets was helped by comments by Putin on Tuesday that there was currently no need to send Russian troops to Ukraine and military action would only be used as a last resort. Nabiullina also moved to boost sentiment Wednesday by talking up the ruble as undervalued. "The central bank does not see fundamental reasons for the deprecation of the ruble. The pressure on it now has been caused by external factors," she told Putin. "The central bank's current estimates point to an undervaluation of the Russian currency," she added. Putin, in his first comments on the Ukraine crisis since the overthrow of president Viktor Yanukovych, had admitted Tuesday that the situation had affected markets. "Politics does one way or another have a effect on markets. Money loves quiet, calm and stability," he said. But he added: "But this seems to me to be a temporary and tactical phenomenon." Chris Weafer, economist at Macro Advisory in Moscow, said that the sheer fact Putin had referred to the market reaction was striking. "The weaker ruble, in particular, has the potential to lead to a drop in public support for the government," he said. "Over the past two days in Moscow all I hear are concerns about the currency and the economy rather than about Russia's ambitions in Ukraine. It seems the Kremlin is paying heed to those concerns also." Nabiullina is a hugely respected economist who previously served as economy minister but is nonetheless seen as unstintingly loyal to Putin. The bank on Monday hiked its main interest rate by 150 basis points in a bid to limit the capital flight from the country. After growth of just 1.3 percent in 2013, Russia was even before the Ukraine crisis facing a prolonged period of low growth due to its failure to implement much needed reform. Economists have warned that the economy could prove to be Putin's achilles heel heading to the next presidential elections in 2018.