Ruble Jumps Most in 22 Months Per Euro as Investors Shun Europe

The ruble surged the most in almost 22 months against the euro and climbed to a one-year high versus its target basket on the first day of 2011 trading amid speculation local investors are repatriating funds on concern Europe’s debt crisis will worsen.

The currency jumped as much as 2.9 percent to 39.53 per euro today, the biggest advance since March 23, 2009, according to data compiled by Bloomberg. It climbed 1.4 percent to 34.6423 against the dollar-euro basket, its largest gain since Sept. 17. Russia’s central bank uses the basket to limit swings in the currency that disadvantage exporters.

The European Commission, the European Union’s executive arm, said last week that holders of senior bonds issued by failing banks may be forced to take losses to protect public finances. Japan and China are planning to buy bonds issued by Europe’s financial-aid funds in a bid to help the region out of the debt crisis that spurred Ireland and Greece to seek bailouts. Russia’s stock, local bond and currency markets reopened today after closing Dec. 30 for the country’s New Year holiday period.

“Locals are coming back from their holidays and see the euro looking vulnerable so they’re playing catch-up,” said Piotr Matys, an emerging-markets analyst in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “The attitude toward Russia is improving and I’m quite upbeat about the ruble.”

Rebound

After sliding 8.7 percent against the euro in September and October, the ruble rebounded by 5.4 percent in the last two months of 2010. Investors shunning European assets in the wake of Ireland’s 85 billion-euro ($110 billion) bailout were lured by the prospect of rising Russian interest rates.

Bank Rossii increased Russia’s deposit rate by 0.25 percentage points to 2.75 percent at its Dec. 24 review, and Chairman Sergei Ignatiev said in December rates may be raised in the first quarter with inflation at the quickest in a year. The regulator may raise rates and allow a stronger ruble to bring down consumer prices, First Deputy Chairman Alexei Ulyukayev told Prime-Tass in an interview published today and confirmed by Bank Rossii’s press service.

The ruble was little changed against the dollar today, trading at 30.5675 by the 5 p.m. close of trading in Moscow, from 30.57 on Dec. 30. The basket rate is calculated by multiplying the dollar-ruble rate by 0.55, the euro-ruble rate by 0.45, then adding them together.

The currency dropped 0.9 percent versus the dollar last year, and gained 6.3 percent versus the euro and 3 percent against the basket.

Floating Corridor

Bank Rossii buys and sells foreign currency to keep the ruble within a so-called “floating corridor” against the basket. The corridor shifts 5 kopeks if interventions exceed $650 million at either end and will probably be widened further this year as the central bank seeks to make the ruble more flexible, Ignatiev said last month. The basket corridor is 33 to 37, Ulyukayev said Dec. 8, according to Interfax.

The central bank sold $720 million and 168 million euros in December to arrest the ruble’s decline, according to data published on Bank Rossii’s web site today.

The ruble will climb 3.3 percent in the first quarter to 34 against the basket as high oil prices and the prospect of higher borrowing costs lure investors to the world’s largest energy exporting economy, according to the median estimate of the five analysts who made the best calls on the ruble in the third quarter of 2010. Crude, Russia’s chief export earner, gained 1.1 percent to $90.24 a barrel in New York today, after rising 15 percent last year.

Capital Inflows

The ruble needs to break a technical level of 34.50 versus the basket before it can strengthen to 34, according to 4Cast’s Matys. The revived economy will attract capital inflows, he said. Outflows of capital topped as much as $30 billion in 2010, more than the official forecast of $22 billion, Ulyukayev said Dec. 29, according to the Interfax newswire.

Credit Suisse Group AG today advised clients to retain so- called long positions on the ruble versus the basket, bets that the currency that will continue to strengthen. Higher oil and interest rates will lure investors to Russian assets and increased investment in equities will also push the ruble higher, Saad Siddiqui, an emerging-markets fixed income strategist in London for Credit Suisse said in a research note e-mailed today.

Ruble-denominated government debt due 2016 were unchanged today, with the yield steady at 7.64 percent. The yield on sovereign dollar-bonds maturing in 2020 snapped a two-day advance, falling 5 basis points to 4.96 percent. Dollar debt due 2015 gained, pushing the yield down 11 points to 3.50 percent, the biggest drop since Jan. 4.

To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net

To contact the editor responsible for this story: Stephen Kirkland at skirkland@bloomberg.net

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