Ruble Drops to 3-Week Low on Oil as RBS Says Pressure Mounting

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The ruble slid to a three-week low as oil fell and Royal Bank of Scotland Group Plc said bigger corporate debt payments will pressure the Russian currency.

The ruble declined 1.7 percent to 51.8530 as of 5:58 p.m. against the greenback, the most among emerging markets tracked by Bloomberg. Bonds fell as the Finance Ministry sold 20 billion rubles ($387 million) of debt offered at auction.

The world’s best currency rally this year is on the wane and the ruble will sink a further 4 percent to 54 against the dollar by the end of the second quarter, RBS’s chief Russia economist, Tatiana Orlova said by e-mail. Russian companies will need to pay $8.7 billion of principal on their foreign debt next month, or 2.4 times the amount in May, Orlova said.

“The ruble has probably already seen its strongest levels versus the dollar this year,” RBS’s Orlova, said in an e-mailed note. “The ruble seems to have strengthened too much.”

Additional selling pressure will come as local companies make dividend payments from May to July and overseas shareholders convert the rubles they receive into foreign currencies, according to RBS. Crude oil, Russia’s main export earner, sank 1.5 percent to $62.75 per barrel in London, near a one-month low, on concern record Iraqi exports will boost OPEC supplies.

Bond Demand

Brent has rallied almost 40 percent from its January low and the rebound, along with a cease-fire in Ukraine, has helped the ruble recover 17 percent of its value percent this year.

While the gain has slowed inflation from the fastest pace in 13 years, allowing the central bank to lower interest rates, it reduces local-currency budget revenue from the nation’s oil exports. Government officials have signaled the appreciation is overdone, and both the central bank and Finance Ministry announced they were selling rubles this month.

Three cuts to the benchmark borrowing rate totaling 450 basis points this year have helped drive demand for Russian bonds after falling oil prices and sanctions over Ukraine forced the Finance Ministry to cancel 27 weekly debt auctions in 2014.

Finance Ministry sold all 10 billion rubles of May 2019 OFZ bonds as well as 10 billion rubles of January 2025 floating-rate bonds, it said on its website. Investors bid for more than double the amount tendered, the data show.

“The ruble weakening doesn’t stop investors from betting on further rate cuts,” Dmitry Polevoy, the chief Russia economist at ING Groep NV in Moscow, said by e-mail.

World Cup

The yield on five-year government bonds rose five basis points to 10.85 percent, the highest since May 15 on closing basis. The Micex Index of equities added 0.6 percent to 1,660.98.

U.S. Justice Department charges against FIFA executives relating to, among other things, the award of the 2018 World Cup to Russia, shouldn’t hurt Russian assets, according to Alexander Losev, chief executive officer at Sputnik Asset Management in Moscow, said by e-mail.

It would be a “strong buy,” if Russia were stripped of the World Cup, he said. “Any Russian, apart from government officials, would probably be happy if it gets canceled. Schools, hospitals and agriculture get all the money that would be spent on a stadium.”

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