Ruble Is Seen as Overvalued to 63% of Economists After Rally

Updated on
The Ruble
A vendor exchanges Russian ruble banknotes with a customer at her fresh fish stall in Kemerovo, Russia. Photographer: Andrey Rudakov/Bloomberg

The ruble is too strong after appreciating 14 percent in April, according to most of the economists surveyed by Bloomberg.

Seventeen of the 27 analysts polled April 24-29 said the currency was overvalued, nine saw it near its “fundamental value” and one said it was still too weak. The ruble is staging its biggest monthly rally since 1993, buoyed by a cease-fire in Ukraine and a revival in the price of oil, Russia’s main export earner, as the peak of foreign debt repayment has passed. The ruble traded 0.1 percent weaker at 51.1120 against the dollar at 11:15 a.m. in Moscow.

President Vladimir Putin has used the ruble’s recovery in 2015 to highlight the resilience of his country’s economy in the face of international sanctions over Ukraine and last year’s plunge in oil prices. Economy Minister Alexei Ulyukayev said April 17 that the currency’s “fundamental value” is close to 50 per dollar and predicted it would fluctuate around that level.

“The ruble has not yet found its new equilibrium price,” Wolf-Fabian Hungerland, an economist at Berenberg Bank in Hamburg, Germany, said by e-mail. “We expect that the ruble will oscillate between 55 and 60 in the medium term.”

Derivatives also suggest the ruble is more likely to weaken. There is a 48 percent probability of the currency depreciating 10 percent by June 30, and a 35 percent chance of a similar-sized gain, according to options data compiled by Bloomberg. The Russian currency tumbled 46 percent against the dollar last year before climbing 19 percent in 2015.

Rally Over

The ruble’s appreciation, driven by a 30 percent jump in the price of oil, is over, according to central bank First Deputy Governor Ksenia Yudaeva. “Now we are seeing a stabilization,” she said April 22.

The ruble’s fair value is 62.2 to the dollar, based on the price of Brent crude averaging $59.80 a barrel during the last 30 days, Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail.

Brent has gained 19 percent in April, the most since May 2009, amid concern that Middle East supplies may be disrupted. The European benchmark crude for June settlement was 39 cents lower at $65.45 a barrel on the London-based ICE Futures Europe exchange.

Budget Damage

While the ruble’s strength is helping curb the fastest inflation in 13 years, it’s also cutting into budget revenue by reducing export proceeds. The government estimates a deficit of 3.7 percent of gross domestic product this year, the widest since 2010.

The currency has climbed “more than needed,” Finance Minister Anton Siluanov said April 24. While the central bank has said the appreciation doesn’t pose a threat to financial stability, it curbed recent gains by raising the cost of borrowing foreign currency through its operations three times since the end of March. The measure spurred the ruble’s worst stretch of losses last week.

The Bank of Russia will probably cut its benchmark interest rate to 13 percent from 14 percent on Thursday, according to 25 of 40 economists surveyed by Bloomberg, with the rest predicting a deeper reduction.

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