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Russia’s Ruble Leads East Europe Currency Rally on ECB Stimulus

Russia’s ruble rallied the most in three weeks against the euro, leading gains among currencies in developing Europe, as euro-area interest-rate cuts boosted the appeal of the region’s riskier assets.

The ruble climbed 0.7 percent to 47.2500 by 6 p.m. in Moscow, when the central bank ends its market operations, the biggest appreciation since May 13. Hungary’s forint climbed the most in a week and the Polish zloty surged as much as 0.5 percent to a 13-month high of 4.1068 against the single European currency before weakening to 4.1383 at 5:48 p.m. in Warsaw.

Bonds of the three countries also advanced as ECB President Mario Draghi lowered the deposit rate to minus 0.1 percent, making the ECB the first major central bank to take one of its main rates negative. The widening spread between euro-area borrowing costs and rates in Eastern nations is “particularly” boosting the allure of east European assets, according to Societe Generale SA.

“Draghi has just increased the carry appeal of all EM currencies, ruble included,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “The question is, though, how long this euphoria lasts.”

The forint jumped as much as 0.8 percent to 302.76 per euro, the biggest increase since March 28, before trading at 303.75. The yield on Hungary’s benchmark 10-year forint bonds fell 13 basis points to 4.68 percent, while the rate on Russian securities maturing in February 2027 declined 10 basis points to 8.57 percent.

Rate Cuts

In a bid to get credit flowing to parts of the economy that need it, the ECB also opened a 400 billion-euro ($542 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan.

The forint has appreciated 1.4 percent versus the euro in the past month, while the ruble is up 4.9 percent and Poland’s zloty 1.7 percent in the period.

“The widening interest-rate differential will help the forint and that will probably increase the room for the Hungarian central bank to cut rates,” Orsolya Nyeste, a Budapest-based analyst at Erste Group Bank AG, said by phone after the ECB decision.

The National Bank of Hungary last week cut its benchmark rate for a 22nd month and maintained the option to ease further based on consumer price forecasts due this month. Polish central bank Governor Marek Belka said this week the chance of easing “isn’t zero” as the inflation rate may turn negative, a development that occurred in Hungary this year.

‘Risk Rally’

“After the ECB steps, there’s a risk of zloty strengthening, which may prompt cuts in Polish interest rates,” Krzysztof Madej, who helps manage 3.2 billion zloty ($1.05 billion) as head of debt investment at Warsaw-based mutual fund Altus TFI, said in e-mailed comments to Bloomberg.

Hungary’s forward-rate agreements used to wager where interest rates will be in three months fell two basis points to 2.37 percent. That compares with the 2.45 percent three-month Budapest Interbank Offered Rate and shows market bets for eight basis points of further rate cuts in the next three months.

“Central Europe’s local markets appear to be particularly well positioned to benefit from the ECB boost,” Benoit Anne, the London-based head of emerging-markets strategy at Societe Generale, wrote in an e-mailed report. “Given the retracement we have observed ahead of this major market event, I expect a solid risk rally playing out in the period ahead.”

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