Ruble Set for Best Gain in Three Weeks as Citi Says Risks Remain

  • Finance Minister sees no need for measures to stabilize ruble
  • Government bond yields decline from three-month high

Russia’s ruble advanced for the first time in more than a week with oil, while Citigroup Inc. warned a “relief rally” may be short-lived.

The currency gained 0.9 percent to 76.357 against the dollar by 7:31 p.m. in Moscow, the most on a closing basis since Dec. 23, as Brent crude climbed for the first time this year. Bonds rose, with the yield on five-year government notes declining one basis point from a three-month high to 10.59 percent.

The ruble has slumped 3.6 percent this month, the third-worst performer among 24 emerging markets tracked by Bloomberg, as oil at 12-year lows sparked concern that Russia will struggle to contain its budget deficit. The country will consider a 10 percent reduction in fiscal spending, Finance Minister Anton Siluanov said in Moscow on Wednesday. Siluanov said he sees no need for measures to stabilize the ruble, including the sale of foreign currency from Treasury accounts.

“I am cautious to call an end to the ruble depreciation story,” said Ivan Tchakarov, a Moscow-based economist at Citigroup. “What we see today is probably a bit of a relief rally."

Budget Forecasts

The price of Brent in rubles was at 2,358 on Wednesday, compared with a 2016 budget that was crafted based on oil at 3,165 rubles a barrel. That’s the least the country generates from a barrel of oil since 2010. Brent crude erased gains on Wednesday after data showed U.S. crude and fuel inventories increased.

“Clearly the budget will be changed and based on lower oil prices,” Tchakarov said, referring to an original fiscal target for $50 a barrel. He forecasts the currency will strengthen to 72 over six to 12 months. “The currency will tend to be supported somewhat by the robust balance of payments and, at the end of the day, we do expect higher oil prices by year-end," Tchakarov said.

As bonds gained for the first time this week, the Finance Ministry sold 9.52 billion rubles of December 2017 floaters out of 10 billion rubles offered as well as all 7.8 billion rubles of May 2020 fixed-coupon OFZs.

The Micex Index of stocks fell 0.3 percent to 1,684.78.

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