- Currency advanced earlier on optimism for Russian rate pause
- Credit Agricole says oil remains `absolutely key' for ruble
The ruble surrendered its gains as concern that a global oversupply in oil will persist outweighed optimism the Bank of Russia will end its rate-cutting cycle.
Russia’s currency retreated 1.2 percent to 69.222 per dollar by 7:30 p.m. in Moscow after rising as much as 0.5 percent. Brent crude extended declines after Russia ruled out cooperating with OPEC on production cuts.
The ruble has slid 7 percent this month, the worst performance among 24 emerging-market currencies, as oil prices fluctuated amid a rout worsened by China’s devaluation of the yuan. Even so, the currency briefly drew strength from expectations that policy makers will halt a run of five interest-rate cuts since January. All but two of 27 economists surveyed by Bloomberg expect the central bank to keep the benchmark rate on hold at 11 percent.
“Keeping rates unchanged will help the ruble, but it will not provide enough insulation if oil prices start falling again,” according to Piotr Matys, a London-based emerging markets foreign-exchange strategist at Rabobank, who expects rates will stay unchanged. Ruble weakness has “slowed down the pace of inflation deceleration,” he said.
Brent crude, the benchmark used to price Russia’s main export blend, fell 3.5 percent to $47.86 a barrel on Monday, weighing on Russia’s RTS stock index and bonds. Russia won’t join the Organization of Petroleum Exporting Countries and isn’t able to cut production in the same way, said OAO Rosneft Chief Executive Officer Igor Sechin. The dollar-denominated equity gauge declined 2.2 percent, while yields on five-year local-currency government bonds increased four basis points to 11.9 percent.
The ruble’s outlook remains bleak, with a measure on its performance against the dollar in the options markets over the next month at minus 4.03 percent, the most bearish in emerging markets after the Argentine peso.
Hedge funds turned the most bearish on the ruble last week since November. Speculators were net short the ruble by 3,396 futures in the week ended Sept. 1, the highest level since November 18, according to U.S. Commodity Futures Trading Commission data published Friday.
The Bank of Russia in July abandoned a commitment to continue lowering borrowing costs as it opted for a 50 basis-point reduction, the smallest this year. The inflation rate is almost four times higher than the central bank’s medium-term target.
Oil will continue to dictate the direction of the ruble, limiting any boost offered by a less dovish Bank of Russia, said Sebastien Barbe, the head of emerging-market research and strategy at Credit Agricole CIB.
“It remains absolutely key for the the ruble,” Barbe said by e-mail. “If oil prices fall again, than even with the rate support, the ruble would likely depreciate further.”