Ruble Gains Prompt Rate-Cut Bets by SocGen Unit as Taxes Loom

  • Stronger ruble means lower risks for inflation, Rosbank says
  • Market Vectors Russia ETF received $30.5 million on Oct. 9

The ruble climbed, keeping gains even after oil retreated, as Russian companies prepared to pay local taxes. Societe Generale SA’s local unit said the strengthening currency will help the central bank resume interest-rate cuts.

The ruble is the best-performing emerging market currency this month after Indonesia’s rupiah and the Colombian peso, as crude prices rallied and investors speculate the Federal Reserve will delay the start of U.S. rate increases. The Bank of Russia kept its benchmark borrowing costs on hold for the first time this year at its last meeting after the ruble’s declines threatened to stoke price growth, hampering policy makers’ ability to bolster the contracting economy.

“The stronger ruble increases the chances of central bank rate cuts in October as it decreases the risk of higher inflation,” Yury Tulinov, head of research at SocGen’s Rosbank PJSC unit in Moscow, said by e-mail.

Inflation Slows

An inflation report last Monday showed price growth dropped pace unexpectedly to 15.7 percent in September for the first time since June. Forward-rate agreements show derivative traders, who a week ago forecast a rate increase in the next three months, now expect a six basis-point cut.

The currency strengthened 0.5 percent to 61.57 per dollar by 6:55 p.m. in Moscow, holding gains even after crude oil reversed its advance and fell 2.4 percent to $51.39 per barrel in London. Exporters are starting to prepare for the tax period in the second half of the month, “which is supportive for the ruble” as the companies convert dollars and euros, according to Alexei Egorov, an analyst at PAO Promsvyazbank in Moscow.

The benchmark Micex index of stocks closed down 1 percent as oil producers
Lukoil PJSC and Tatneft PJSC declined 2.5 percent and 2.4 percent, respectively. A planned tax increase for the nation’s energy producers in 2016 would reduce their operating cash flow and increase the need to cut investments, Fitch Ratings said in an e-mailed report today. Russia had initially planned a 36 percent oil-export rate starting Jan. 1, but decided instead to extend this year’s rate of 42 percent into next year.

Transaero Slumps

Transaero Airlines sank 17 percent. Rescuing the company is “impossible,” and the government doesn’t consider it necessary, VTB Bank Chairman Andrey Kostin said on Rossiya 24 on Friday. Aeroflot PJSC advanced 2.6 percent. VTB Capital today raised its recommendation for the stock to buy from hold, saying the company looks cheap compared with Turkish Airlines.

The Market Vectors Russia ETF received $30.5 million on Oct. 9, the fourth day of inflows, according to data compiled by Bloomberg. The Market Vectors Russia ETF has returned 18 percent in 2015, the best performance among 776 U.S.-domiciled exchange-traded funds with assets of at least $100 million, according to data compiled by Bloomberg.

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