It's Time for Russia to Sell Expensive Ruble, Credit Suisse Says

  • Ruble price of a barrel of Brent near lowest since 2011
  • Russia has complicated the situation in Syria: Valery Pushnya

Russia’s budget revenue is suffering because the ruble is overvalued relative to oil prices and policy makers should weaken the local currency by restocking the nation’s reserves, Credit Suisse Group AG said.

“The central bank definitely has room for maneuvers until the ruble hits 80” per dollar, Valery Pushnya, the head of emerging markets in Europe, the Middle East and Africa at Credit Suisse Group AG in Moscow, said in an interview. That’s 17 percent weaker than its current level. Russians watched the ruble collapse beyond that level at the peak of the country’s market turmoil a year ago “and nothing happened,” he said.

Russia is struggling with a recession and its deepest budget deficit in five years as a 40 percent drop in oil prices and sanctions over Ukraine take their toll on the finances of the world’s biggest energy exporter. At the same time, the ruble hasn’t kept up with the drop in oil this quarter, even after Turkey’s downing of a Russian warplane over Syria pushed the currency lower last week. That imbalance translates into reduced government revenue from the nation’s top export earner in local-currency terms.

The cost in rubles of a barrel of Brent, which underpins the price of Russia’s main export blend, was at 2,965 a barrel on Tuesday, 127 rubles ($1.90) off a 2011 low reached on Nov. 17. While oil has fallen 8.1 percent this quarter, the ruble is down 1.9 percent. It traded 0.4 percent weaker against the dollar at 66.726 as of 4:21 p.m. in Moscow.

Syria Conflict

“The revenues from oil exports need to increase, and I don’t see any other solution but through devaluing the ruble,” Pushnya said. 

The central bank weakened the ruble when it started selling the local currency in May to boost waning international reserves. Since late July, the central bank put aside a goal to rebuild the cash pile to avoid exacerbating the ruble’s drop and stoking inflation. The reserves stood at $364.5 billion last week, up 4 percent from an April low.

Russia’s currency sank the most among emerging markets last year and tumbled to a record intraday low of 80.10 versus the dollar on Dec. 16, even as the central bank hoisted interest rates by an emergency 6.5 percentage points to stem the rout. The currency slowed its fall this year after a peace deal was struck between the Ukrainian government and Russian-backed rebels in February, while the Paris terror attacks last month spurred optimism that the West and Russia will coordinate their military efforts in Syria.

“Russia’s participation in the Syrian conflict may be a positive factor right now, but it has definitely complicated the situation dramatically,” Pushnya said. “The more complicated the situation, the higher the chances that something will go wrong. I wouldn’t be too optimistic about Russian assets.”

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