LONDON: The rouble's opening bounce fizzled on Wednesday as the currency shrugged off the latest hard currency sales against a backdrop of general bearishness on Russia and mounting pressure across emerging markets.
Central banks from Brazil to Indonesia have stepped in this week to curb losses in their currencies which have sold off versus the dollar on expectation the U.S. Federal Reserve will hint at the timing and extent of future interest rate rises.
The rouble's collapse has also prompted many funds to bail out of emerging assets, taking MSCI's emerging equity index to new 17-month lows while emerging dollar bonds' average spread over U.S. Treasuries stood at new 5-1/2 year highs of 474 basis points (bps).
Russian spreads were unchanged at 722 bps after Tuesday's blowout fuelled by the rouble's fall to around 80 per dollar . The currency later recovered slightly and stands at 68.40, flat on the day despite heavy dollar sales earlier.
Moscow dollar-denominated stocks rose 4 percent though the rouble-denominated index fell 1 percent and rouble 10-year debt yields fell almost 200 bps from Tuesday's peaks of over 16.5 percent.
"The central bank is having to throw the kitchen sink at the rouble just to get it to stabilise, the positive spin today is that it's at least not falling any more" said Neil Shearing, head of emerging markets research at Capital Economics.
But if oil prices resume their slide, the central bank would be unable to hold the rouble, he said, warning: "Then we are in realms of measures such as capital controls."
Elsewhere too, the Indonesian rupiah hit a new 16-year low and India's rupee a 13-month low , with the latter estimated to have sold $500 million.
The lira weakened 0.3 percent though it stayed off Tuesday's record lows after central bank action. The rand and zloty fell 0.8 and 0.6 percent respectively .
Brazil heavily sold forward currency swaps on Tuesday to support the real which hit 10-year lows
Central banks will monitor the inflationary effects of currency weakness but only a few need to worry, Shearing said.
"Russia has triggered dislocation in other emerging markets but with the exception of Brazil and Turkey, policy makers in most countries won't be too worried about weaker currencies," he said.
Most central European assets fell, pricing the fallout from Russia. Hungarian stocks hit new 2011 lows with drugmaker Richter, with strong sales in Russia, shedding 1.7 percent. Slovenia's Krka, another drugmaker, fell 9 percent after it warned late on Tuesday of an earnings hit from the plummeting rouble
Middle eastern markets mostly stabilised, with Saudi stocks up 1 percent after Tuesday's 7 percent drop while Dubai jumped 5 percent.
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