Russia | Recession signs mount as central bank stems ruble losses

Doormen push a luggage trolley through the entrance to a hotel in Saint Petersburg

Russia’s economic pain worsened as a measure of services dropped to the lowest point since May 2009 and the central bank attempted to stem the ruble’s biggest slide in 16 years.
The ruble touched a record low for a fifth day yesterday as data showed a gauge of business activity fell to a worse-than-forecast 44.5 in November. It rebounded amid speculation the Bank of Russia intervened to support the currency after it depreciated more than 16 percent in six days, the most since the 1998 default.
The services data are “the lights of recession, which, like a train, is getting closer,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Brondby, Denmark, said by e-mail. “Services is the first industry where the savings and the drop in consumer spending is seen.”
Russia’s Economy Ministry acknowledged for the first time Tuesday that the USD2 trillion economy will fall into a recession next year, while a former central banker spoke of “some panic” in a financial system beleaguered by sanctions over the conflict in Ukraine.
The Bank of Russia said yesterday it sold USD700 million on Dec. 1, its first intervention since moving to a free float almost a month ago. The central bank probably spent about $600 million to $1 billion defending the ruble yesterday, according to Alexander Myulberger, the head of foreign-exchange trading at BCS Financial Group in Moscow.
The ruble climbed 1 percent to 53.3235 per dollar at 2:30 p.m. yesterday in Moscow, having weakened to a record 54.9090 after the release of the services data. The yield on Russian 10-year bonds has jumped 76 basis points in the past seven days to a five-year high of 10.95 percent yesterday. The currency lost a third of its value since President Vladimir Putin started his incursion into Ukraine’s Crimea peninsula in March.
“They’re intervening in order to show that they’re monitoring the situation and won’t let the ruble go out of control,” Evgeny Shilenkov, the head of trading at Veles Capital LLC in Moscow, said by phone. “Conceptually, nothing has changed and the ruble will continue falling on oil and the economy.”
The annexation of the Black Sea region led the U.S. and European Union to impose sanctions on Russian companies and individuals, largely blocking their access to western debt markets and creating a domestic dollar shortage.
The Russia Services Business Activity Index fell from 47.4 in October, according to data released by HSBC Holdings Plc. and Markit Economics yesterday.
The data came after the Economy Ministry on Tuesday estimated gross domestic product will shrink 0.8 percent next year, while VTB Bank’s supervisory board Chairman Sergey Dubinin said there was “some panic” in the financial system.
The ruble drop and four interest-rate increases this year are a “bad combination” for growth and lenders, he said yesterday at a banking forum in London, organized by Adam Smith Conferences. Ksenia Galouchko and Olga Tanas  , Bloomberg