Ruble Leads Emerging-Market Rally as $40 Oil Spurs Rate-Cut Bets

  • Central bank likely to soften tone at meeting: Promsvyazbank
  • Russia stock funds attracted $177.5 million in week to March 9

The ruble headed for its longest stretch of weekly gains in almost a year as oil’s recovery above $40 a barrel reduced pressure on the economy of the world’s largest energy exporter. Government bonds fell, trimming the second-best rally in emerging markets this month.

The currency strengthened 2.3 percent to 69.788 the most among 24 emerging markets tracked by Bloomberg by 7:15 p.m. in Moscow. A four-week rally in the ruble is giving Russian policy makers room to resume a cycle of interest-rate cuts, with wagers for a reduction in borrowing costs widening to the highest level this year on Friday. Local-currency bonds have returned 7.6 percent this month in dollar terms, the most after Brazil.

Russian assets have come back in favor as Brent crude, used to price the country’s main export blend, jumped 14 percent this month. The gains are making it easier for central bank Governor Elvira Nabiullina to turn her attention to shoring up an economy in recession as inflationary pressures subside. Policy makers will next decide interest rates on March 18.

“The ruble has potential to gain further as the market still hasn’t fully priced in oil above $40,” said Alexei Egorov, an analyst at Moscow-based Promsvyazbank OJSC, which had the second-most accurate ruble forecast for 2015. While she probably won’t ease next week to avoid appearing "fickle," Nabiullina will “likely change its rhetoric to hint at a resumption of monetary easing," he said.

Ruble Recovery

Following the last rate decision on Jan. 29, the central bank held its benchmark at 11 percent and suggested that an increase in interest rates may be on the cards if inflationary pressures intensify, while removing a reference to the possibility of resuming an easing cycle that ended in September.

That was just days after a slump in oil drove the ruble to a record 85.999 per dollar, a trough from which it has since jumped 23 percent. Annual inflation, meanwhile, slowed to 8.1 percent in February, about half its 12 months earlier. Russian consumer prices rose 0.2 percent in the first nine days of March compared with a gain of 0.1 percent for the previous seven-day stretch, Russian Federal Statistics Service data showed today. The data is two days longer because of a holiday.

Slowing inflation won’t “trigger a big change in the central bank policy stance next week as the scale of the probable acceleration in annual inflation in the second quarter still adds some uncertainty,” said Dmitry Polevoy, an economist for Russia at ING Groep NV in Moscow. “The data may indeed more positives but the bank needs to be confident that the worst is over,” he said.

Brent crude climbed 0.6 percent to $40.29 on Friday amid signs of rising U.S. fuel demand and easing crude production, taking its rally from January’s low to 45 percent. Egorov said he sees the ruble strengthening to as much as 68 next week.

Five-year sovereign bonds declined, sending the yield five basis points higher to 9.41 percent and have fallen 154 basis points since touching a 2016 high in January. Forward-rate agreements are signaling 69 basis points of rate cuts in the next three months.

The Micex Index of stocks was down 0.4 percent at 1,876. Russian equity funds attracted $177.5 million inflows in the week to March 9, the biggest weekly fund inflow since February 2015, according to Sberbank CIB, which cited EPFR Global data.

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