Ruble Swings Abate, Clearing Way for Russia to Build Reserves

  • Gauge of volatility falls to lowest in more than two months
  • Rally pushes yield on five-year note to lowest in 13 months

The ruble and bonds drew strength from gains in the price of oil, and a hiatus in volatility renewed focus on when the central bank will restart foreign currency purchases to build up reserves.

The Russian currency strengthened 1.4 percent to 62.801 per dollar by 6:37 p.m. in Moscow, the strongest level since Oct. 26. Five-year government bonds climbed, lowering the yield 13 basis points to 9.99 percent, the lowest since October 2014. One-month historical volatility on the ruble dropped to 23.4 on Tuesday, the lowest level since August 12. Brent crude gained 2.5 percent.

Russia’s central bank is waiting for price swings in the currency to abate before resuming buying of foreign currencies to replenish reserves eroded by interventions last year to shore up the ruble, Governor Elvira Nabiullina said in October. The Bank of Russia is still prepared to sell foreign currency to support the ruble, Nabiullina told lawmakers in the State Duma Tuesday. She said the currency must remain free-floating.

Spillover Effect

The ruble can stay in a range of 63.50 to 64 so long as oil trades in a band between of $48 and $50 a barrel, said Alexei Egorov, an analyst at PAO Promsvyazbank in Moscow. Oil traded at $49.80, above its 60-day moving average on speculation a U.S. government report Wednesday will show that inventories rose by the smallest amount in six weeks while supplies of gasoline and distillate fuel dropped.

“Volatility has been coming down as swings in the oil price have been subsiding,” Egorov said by phone.

Among other beneficiaries of higher oil prices, energy companies Gazprom PJSC and Lukoil PJSC led gains on the Micex Index, adding 2.9 percent and 3 percent respectively. The index advanced for a third day, increasing 1.7 percent.

Aeroflot PJSC, Russia’s biggest airline, jumped 6.5 percent. S7 Airlines co-owner Vladislav Filyov won’t buy 51 percent of indebted Transaero Airlines, RIA reported on Monday, citing another S7 co-owner, Natalia Filyova. Transaero’s bankruptcy would reduce competition for Aeroflot.

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