Russia’s efforts to assure investors it can weather oil’s plunge are winning few believers in the bond and currency markets.
Citigroup Inc., the second-most accurate ruble forecaster in the first quarter, predicted the currency will tumble to near its lowest on record by the end of next month, diminishing any prospect of further interest-rate cuts to rescue the economy from a recession. Eurobond prices dropped to a five-month low on Monday and the cost of protecting government debt against default climbed.
“The ruble weakening will be an obstacle to monetary easing,” Ivan Tchakarov, an economist at Citigroup in Moscow, said by e-mail yesterday. “They will stay on hold -- they’ll need to.”
The outlook underscores deteriorating investor confidence days after President Vladimir Putin commended policy makers’ efforts to keep the ruble stable while the central bank vouched that the current account will remain in surplus even if oil prices drop to $40 a barrel. Rather than anticipating more monetary stimulus to help rescue Russia from recession, traders are starting to predict an increase in interest rates.
Borrowing costs are likely to rise in the next three months, according to forward-rate agreements trading 19 basis points above the benchmark three-month MosPrime rate. Five-year government bond yields are 23 basis points above the key rate, the biggest premium since January.
The ruble, the worst-performing major currency this quarter, will slide 2.5 percent more by the end of September to 67.50 per dollar, Tchakarov said. The effect in boosting the cost of imported goods will demand the central bank leave its rates unchanged for the first time this year at its Sept. 15 meeting, according to Citigroup. The bank was second to Commerzbank AG for the accuracy of its forecasts in the first three months of 2015, according to data compiled by Bloomberg.
The ruble slid for a fourth day on Tuesday, falling 0.6 percent to 65.8890 against the dollar as of 10:17 a.m. in Moscow.
The world’s largest energy-exporting economy is heading for an estimated 3.6 percent contraction this year, caused by lower oil prices and international sanctions tied to its role in the Ukraine conflict, according to a Bloomberg survey of analysts. Brent crude fell as low as $48.35 a barrel on Monday, after entering a bear market last month.
Central bank governor Elvira Nabiullina reduced the benchmark rate five times by a total of 6 percentage points since making an emergency increase last December to arrest the ruble’s weakening.
Russia pared its pace of cuts to 50 basis points at its last meeting on July 31. It also dropped from the accompanying statement a pledge on readiness to lower rates further. Annual inflation remained at 15.6 percent in the week to August 10, according to ING Bank Eurasia JSC.
“The ruble weakening may become an obstacle or delay monetary easing by the Bank of Russia,” said Artem Arkhipov, the chief Russia economist at UniCredit SpA’s local unit, one of only three economists with forecasts on Bloomberg that correctly predicted the scale of cuts at each of the last three meetings.
The central bank retains a target of bringing inflation down to 7 percent by the end of the second quarter next year and plans to reach its medium-term target of 4 percent in 2017.
Any further decline in oil and the ruble is likely to cause the central bank to consider raising its rate, Evgeniy Vorobiev, the head of research at the asset management arm of insurer Ingosstrakh IPJSC, said by e-mail on Monday.
“At $45 per barrel of Brent, they will start serious discussions on a possible rate hike,” he said.
(An earlier version of this story corrected reference to current account in fourth paragraph.)