Ruble Rebound Puts Currency Out of Touch With Oil Before Rates
The ruble gained for a third day, sparking concern the currency is overvalued relative to the price of oil and threatening government efforts to cover its budget.
The exchange rate, which has fallen 6.3 percent in the past month, strengthened 0.6 percent per dollar to 68.9300 by 6:28 p.m. in Moscow. Brent crude, the benchmark for the country’s main export blend, fell 0.7 percent to $39.83.
The price of Brent crude in local currency terms declined Thursday to a five-year low, a day before the Bank of Russia meets to discuss monetary policy. The low price Russia gets for oil puts a strain on budget revenue at a time the government is struggling to contain its biggest budget deficit in five years.
“The ruble seems to be ignoring oil,” said Alexei Egorov, an analyst at PAO Promsvyazbank in Moscow. “Despite the fact that the oil price is hitting new lows, there’s low demand for dollars among people and companies." Egorov predicted the central bank will hold its key rate at 11 percent because it doesn’t want to risk stoking inflation.
Policy makers will probably leave rates on hold at 11 percent on Friday for a third consecutive meeting, according to the median of 34 estimates in a Bloomberg survey. Forward-rate agreements signaled 40 basis points of key rate cuts in the next three months, the smallest reading since October. Even leaving rates unchanged will have only a limited effect on the ruble, Egorov said.
“Of course, such a combination of oil and ruble is inconvenient for the budget,” Yury Tulinov, the head of research at Societe Generale’s Rosbank PJSC unit in Moscow, said by e-mail. “Traders are waiting for oil prices to recover and don’t want to sell the ruble."
A weaker ruble risks stoking inflation, while a stronger currency may threaten competitiveness and hurt budget revenue that’s dependent on the price of oil and the ruble. Brent in rubles dropped 1 percent to 2,755 rubles, trading below the 3,284 average for the past 12 months.
Brent crude stabilizing around $40 and unchanged rates should prevent the ruble from weakening past 70 per dollar, according to Piotr Matys, a strategist for emerging-market currencies at Rabobank.
“We expect the Bank of Russia to keep rates unchanged,” said Matys. “Such a decision should provide the ruble with some support, but it will not prove sufficient if Brent crude starts leaning lower."
The benchmark Micex Index of stocks rose 0.1 percent to 1,735.41, with Lukoil PJSC gaining 2.2 percent. Market Vectors Russia ETF had outflows of $6.2 million on Dec. 9, according to data compiled by Bloomberg. The yield on Russia’s five-year government bond was little changed at 10.14 percent.