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Ruble Gains Most in 2 Weeks as Demand for Local Bonds Returns

The ruble strengthened the most in more than two weeks as emerging-market currencies rallied and government bonds rose on speculation the central bank may cut rates at the end of the week.

The ruble appreciated 0.8 percent against Bank Rossii’s basket of dollars and euros, the most since June 21, to 37.1837 by 6 p.m. in Moscow, when the central bank stops its trading operations. The yield on benchmark OFZs due February 2027 declined eleven basis points, or 0.11 percentage point, to 7.77 percent, the lowest since June 19.

An index of emerging-market currencies compiled by Bloomberg rose 0.3 percent to 93.35. Brent oil was little changed in London at $107.47 per barrel. Bank Rossii may loosen monetary policy at its next meeting with a 25 basis-point cut to short-term rates after inflation slowed in June, Morgan Stanley analysts said July 8.

“It looks like everybody’s preparing for the possible central bank rate cut,” Mikhail Vashchenko, a money manager at Kapital Asset Management LLC, said by e-mail. “There are a lot of speculative positions around OFZs, especially by local players.”

The Finance Ministry plans to offer 10 billion rubles ($303 million) of OFZ bonds due January 2018 at a proposed yield of 6.60 percent to 6.65 percent at an auction tomorrow, it said in a statement on its website.

Fed Minutes

The finance ministry is also offering 10 billion rubles of bonds due 2023 at a yield range of 7.38 percent to 7.43 percent. It sold all 20 billion rubles of 2018 bonds offered in an auction on July 3 at an average yield of 6.83 percent.

The ruble strengthened 0.8 percent against the dollar to 32.9505 and advanced 0.8 percent against the euro. While the ruble is the fifth-best performer among 24 emerging currencies tracked by Bloomberg today, it’s about 8 percent weaker against the dollar since the beginning of the year.

“What’s happening, we view as a correction” after a decline last week, Anton Zakharov, commodities and foreign exchange analyst at OAO Promsvyazbank, said by e-mail.

The U.S. Federal Reserve will tomorrow release minutes of its June 18-19 meeting, after which Chairman Ben Bernanke said the central bank may taper its $85 billion in monthly bond buying, causing the ruble to drop to a 20-month low. Bernanke will also speak on economic policy in Boston tomorrow.

Raised Band

“The upward trend in the dollar was likely over on the day after Bernanke announced the tapering,” Mikhail Palei, a foreign-exchange trader at VTB Capital, said by phone from Moscow. “Now we’ll likely see range-bound trading with the ruble’s potential decline limited by the level where the central bank sells a lot.”

Bank Rossii, which reports FX intervention data with a one-day lag, sold 6.65 billion rubles equivalent of foreign currency on July 5, boosting the total amount spent since interventions began on May 29 to 137.7 billion rubles.

The regulator has raised the band in which it allows the ruble to trade against its target dollar-euro basket by 5 kopeks to 31.75-38.75, according to a person familiar with the matter, who asked not to be identified because the information isn’t public.

The central bank moves the corridor by 5 kopeks when non-target currency interventions reach $450 million, according to its website.

With non-target interventions at about 25 percent of the total amount of currency sold, and “if the basket continues to trade around 37.00-37.50, we should see a five kopeks shift up every nine working days,” Vladimir Kolychev, chief economist and strategist at OAO Rosbank, said by e-mail.

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