The ruble’s volatility declined for the sixth day, reaching the level last seen before the Bank of Russia declared the currency free-floating in October, as investors bet the central bank is managing the exchange rate.
Price swings are stabilizing after the country’s monetary authorities effectively switched to a “dirty float” mechanism to keep the ruble in a “comfortable” range of 55-60 per dollar, Yury Tulinov, the head of research at PAO Rosbank, said. The currency strengthened 0.3 percent to 56.8570 per dollar by 5:52 p.m. in Moscow, extending the biggest advance among peers this year.
The perceived intervention shows how improved stability in Ukraine is boosting investor confidence in Russia to a point where the ruble’s strength threatens competitiveness. The nation needs to keep the currency relatively weak given inflation risks and to fund accumulating social expenses. Policy makers have purchased $200 million a day since June 8.
“The market doesn’t see yet any strong factors to break out of this range,” Tulinov of Rosbank, the local arm of Societe Generale SA, said in e-mailed comments. “A confident move in the oil price toward $50 per barrel will do it.”
Brent crude has declined by about 16 percent to $57.22 per barrel since its peak this year. One-month historical volatility on the ruble subsided to 13.6 on Tuesday after reaching 89 in January. The level is still the highest among 24 emerging-market currencies tracked by Bloomberg after the Brazilian real.
Central-bank Governor Elvira Nabiullina, in a June interview with CNBC, said policy makers are “comfortable” within any ruble range and that the currency is fully free-floating. President Vladimir Putin on July 9 praised monetary authorities for keeping the ruble within an “acceptable corridor” while maintaining reserves and a positive trade balance.
The government’s five-year bonds fell for a second day, pushing yields up seven basis points to 10.7 percent. The Micex index of major stocks gained 0.5 percent to 1,635.15.
While the economy of the world’s largest energy exporter is headed for a recession, Russia’s current account registered a surplus of $48 billion in the first half of the year, 27 percent higher than the same period of 2014. That helped the central bank resume purchases of foreign currency to replenish international reserves.
“Sentiment toward Russia is gradually improving, and risks to financial stability are far lower than in the end of 2014,” Tulinov said.