- Forward-rate agreements show increasing bets for rate cuts
- Analysts are split on whether Bank of Russia will ease policy
The ruble rallied the most in emerging markets as oil prices surged, boosting bonds and helping the Russian Finance Ministry sell out both of its debt auctions amid waning concern the central bank will keep rates on hold.
The Russian currency jumped as much as 2 percent, fueling speculation the stronger ruble will allow central bank Governor Elvira Nabiullina to return to rate cuts on Friday to spur the economy. Forward-rate agreements showed wagers for interest rates to fall by 65 basis points in three months, up from 55 basis points yesterday.
The ruble traded 1.6 percent stronger at 63.85 per dollar as of 5:15 p.m. in Moscow, erasing a 1 percent drop earlier in the session. Brent crude, the grade used to price Russia’s main export blend, surged as much as 3.8 percent to $48.60 per barrel. Bonds climbed, lowering the yield on five-year local-currency debt four basis points to 10.09 percent as the Finance Ministry sold all 20 billion rubles ($313 million) of notes due in 2027 and 2025.
"People must still believe in the rate cut on Friday," Dmitry Dudkin, head of research at UralSib Capital, said by e-mail. “While it still makes perfect sense to bet on a normalization of interest rates through longer bonds, some investors might have been spooked by yesterday’s sell-off in oil.”
Nabiullina is striving to balance the need for lower interest rates to lift the economy out of its first recession since 2009 without reigniting inflation, which has slowed since touching a 13-year high in March. Economists surveyed by Bloomberg are evenly split on their outlook for the decision, with 19 projecting a reduction in borrowing costs and the same number forecasting the benchmark rate will stay on hold at 11 percent for a second month.
The ruble’s 3.9 percent depreciation in the previous two days, which happened as oil fell and currency demand from exporters to pay taxes waned, may have made policy makers more cautious about a rate cut, according to Nordea Bank AB.
"It will make the central bank more cautious in their assessment of risks, as a risk-off environment coupled with a rate cut may send the ruble to August lows," Denis Davydov, an analyst at Nordea Bank’s Moscow unit, said in e-mailed comments.