Russia’s ruble resumed losses following the biggest single-day rally since May on speculation the end of central bank foreign-exchange purchases won’t be enough to support the currency before an interest-rate decision on Friday.
The ruble declined 2 percent to 59.8560 against the U.S. currency by 5:02 p.m. in Moscow after jumping 2.3 percent on Wednesday in gains spurred by a Bank of Russia move to halt purchases of foreign exchange. A rout in oil prices has accelerated the ruble’s retreat in July to 7.5 percent, leading economists to wager policy makers will opt for the smallest rate cut this year at their Friday meeting.
“The ruble strengthened too much yesterday,” Aram Kazaryan, a foreign-currency and derivatives sales trader at MDM Bank PJSC in Moscow, said in e-mailed comments. “At 59 people think dollar looks appealing” after the ruble weakened beyond 60 a day earlier, he said.
Government bonds also fell after Wednesday’s rally sent yields on five-year notes dropping 32 basis points to 10.86 percent. Russian assets have faced downward pressure this month as oil, the nation’s main export earner, heads for its biggest monthly drop this year due to concerns of global oversupply.
Banking stocks gained in Moscow on Thursday as 30 of 35 economists surveyed by Bloomberg predict the Bank of Russia will lower the benchmark interest rate from 11.5 percent. Policy makers have already reduced borrowing costs by 5.5 percentage points in 2015 to support an economy facing its worst slump since 2009. Shares of OAO Sberbank, Russia’s largest lender, gained 1.3 percent in their third day of advances.
PJSC Magnit gained 1.3 percent in Moscow after Alfa Bank and Credit Suisse Group AG recommended buying the shares and raised price estimates on the outlook for profitability.
Yields on five-year bonds climbed five basis points to 10.91 percent.
Emerging-market currencies extended declines after U.S. economic data fueled speculation the Federal Reserve will raise interest rates sooner than later. Gross domestic product rose at a 2.3 percent annualized rate in the second quarter, and a revised 0.6 percent advance in the previous period wiped out a previously reported contraction, Commerce Department data showed Thursday.
The central bank bought around $10 billion to replenish international reserves since starting the program in mid-May, adding up to $200 million per day. The Bank of Russia stopped the purchases due to “growth in volatility on the domestic currency market,” it said yesterday.
Projected ruble price swings in the next three months are the biggest among 23 emerging-market peers tracked by Bloomberg.
Given the volume of foreign-currency buying wasn’t large, the effect of the decision was more “psychological than a factor that would be able to tip the market balance,” Vladimir Evstifeev, analyst at OJSC Bank Zenit, said in e-mailed comments.