Ruble Snaps Four-Day Rally on Oil as Rates Warning Hurts Bonds

  • Bank of Russia warned inflation may necessitate rate increase
  • Five-year ruble bond falls second day, yield rises to 10.40%

The ruble slumped for the first time in five days, retreating with weaker oil prices, while a warning on the possibility of higher rates by the Bank of Russia curbed appetite for government bonds.

The Russian currency traded 1.5 percent weaker at 76.538 per dollar as of 5:50 p.m. in Moscow, paring last week’s four-day, 6 percent rally. Bonds dropped for a second day, raising the yield on government five-year debt by nine basis points to 10.40 percent after the Bank of Russia warned on Friday that it may consider raising rates to combat the risk of quicker inflation.

The currency of the world’s biggest energy exporter has been buffeted by swings in the price of oil this year after concern over slowing growth in China and a global supply glut drove up volatility. While local tax payments and a bounce in oil prices last week helped the ruble to recover, the currency is still the fourth-worst performer in emerging markets this year. Policy makers opted to hold rates at 11 percent at their meeting last week.

“In Russia the tax period is over, the central bank rates meeting is over too, so we just swing to the tune of global markets and oil,” Denis Davydov, analyst at Nordea Bank in Moscow, said by e-mail. “And there’s not much optimism here.”

Brent Slides

Brent, the blend used to price Russia’s main export variety, was 4 percent weaker at $34.52 per barrel, trimming last week’s 9.6 percent surge that lifted prices from a 12-year low.

“There was a big short squeeze in oil last week, and on top of short oil positioning, I guess, the positioning in the ruble was short, too,” said BNP Paribas SA’s Piotr Chwiejczak, the most-accurate ruble forecaster in the third quarter, according to Bloomberg rankings. “So two extreme short positions in oil and the ruble were squeezed, leading to that rally last week. I don’t think that momentum will sustain. We see the ruble stabilizing at these levels, no more appreciation.”

The Micex Index fell 1.3 percent to 1,761.08. Market Vectors Russia ETF had $11.51 million inflows on Jan. 29, according to data compiled by Bloomberg.

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