Ruble Falls as Moody's Says Russia Among Most Vulnerable to Fed

  • Deputy Finance Minister downplays Fed risks after 50% slide
  • ING Groep says oil-price direction remains key risk for ruble

The ruble weakened for the first time in four days, pressured by a decline in oil, as Moody’s Investors Service named Russia among four emerging markets most at risk from a potential increase in U.S. interest rates.

The Russian currency slipped 0.6 percent to 65.856 per dollar by 6:22 p.m. in Moscow, surpassed only by South Africa’s rand and Brazilian real, which along with the Turkish lira were cited by Moody’s as facing "exchange rate and financial-market instability."

While Russia’s deputy finance minister downplayed the risks from a Fed rate increase because the ruble has already suffered a "hard adaptation" to the prospect of U.S. tightening, Moody’s said in a Sept. 16 research note there’s still a low risk for a "disorderly reaction" following the initial Fed liftoff. U.S. policy makers will decide on interest rates today, with market odds showing a 34 percent probability they will increase borrowing costs for the first time since 2006, down from 48 percent a month ago.

"The fact of the rate hike itself isn’t as scary as the uncertainty about the next moves of the Fed," Dmitry Polevoy, an economist for Russia at ING Groep NV in Moscow, said in e-mailed comments. "For Russian assets, we don’t see big risks, unless the Fed moves the oil price, which remains the driving force for the ruble."

50% Depreciation

The ruble’s trend downward on Thursday happened as Brent crude, the grade used to price Russia’s main export blend, fell 0.4 percent to $49.57 a barrel. Oil prices jumped 6.7 percent on Wednesday in London. Five-year government bonds declined today, lifting yields by one basis points to 11.62 percent.

Fed tightening is a reality Russia and other emerging countries will face "sooner or later," Maxim Oreshkin, the nation’s deputy finance minister, said in Moscow on Thursday. The ruble has lost 50 percent of its value since the start of 2014 due to a combination of tumbling oil prices, sanctions over the conflict in Ukraine and risks related to the Fed and a slowdown in China, Russia’s biggest trading partner.

As a result, the currency will suffer less once the Fed actually starts raising, Oreshkin said.

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