Ruble's World-Beating Ascent Seen Testing Bank of Russia Limits

  • Citigroup sees 60 per dollar as trigger for interventions
  • Russian currency is best-performer worldwide in past month

The ruble’s world-beating gains may soon come to an abrupt end, according to the biggest foreign-exchange trader globally.

Citigroup Inc. says the odds are rising that the Bank of Russia starts buying dollars for the first time in almost a year if the ruble climbs to 60 against the greenback, compared with 67.822 on Monday, the strongest level this year. The currency will extend its appreciation into the low 60s, Citigroup said.

While an appreciating currency shows that Russia’s economy can weather international sanctions, too strong of a ruble might crimp budget revenue from oil and natural-gas export sales. Much of the gains have been driven by a rebound in oil, the nation’s biggest source of foreign earnings. The Bank of Russia’s signal last week that it’s in no hurry to cut interest rates is also propelling the currency’s increases.

“The ruble is a paper-oil currency and climbing crude, together with a dovish Fed-hawkish Bank of Russia combination, creates strong momentum,” said Denis Korshilov, head of fixed-income, currency and commodities at Citigroup’s Russian unit in Moscow. “The question mark here is if and when the central bank decides to start interventions to buy dollars.”

Bounce Back

After posting the second-steepest drop for an emerging-market currency in the last quarter of 2015, the ruble has bounced back from its weakest on record in January when crude sank to a 13-year low. It’s had the strongest gain worldwide in the past month, adding 11 percent. The ruble rose 0.4 percent to trade at 67.57 per dollar as of 5:30 p.m. in Moscow, reversing losses triggered after explosions in Brussels caused deaths and injuries.

Almost half of Russia’s budget revenue comes from the oil and natural gas industries and price swings in global commodity markets have roiled the economy of the world’s biggest energy exporter and whipsawed the ruble.

Given that dependence, a weaker currency can help the government meet its budget target because more rubles are collected from each barrel of oil sold abroad. Brent in ruble terms was at 2,811 per barrel on Tuesday, about 11 percent below the level on which the 2016 budget is based, according to Bloomberg calculations. Oil fell amid speculation that some major oil producers, including OPEC members, are not planning to join an output freeze aimed at stabilizing prices.

“The central bank will likely use this opportunity to replenish reserves since the budget suffers from a stronger ruble,” said Oleg Popov, a money manager who oversees $300 million of assets at April Capital in Moscow. “I’d say they will definitely start buying FX if the ruble hits 60.”

Rebuilding Reserves

Goldman Sachs Group Inc. and Danske Bank A/S issued more bullish forecasts for the currency on Monday. Goldman’s chief emerging markets macro strategist Kamakshya Trivedi has a “constructive view” on the Russian currency and predicts the ruble will reach 62 in 12 months, from 66 forecast earlier, while Danske has a forecast of 62.20.

The Bank of Russia last stepped into the foreign currency markets when the ruble strengthened below 50 against the dollar in May, purchasing dollars to replenish international reserves as sanctions over Ukraine and falling oil forced policy makers to burn through about $90 billion in 2014 to slow the ruble’s drop. The Bank of Russia halted the purchases in July last year as the currency weakened toward 60 against the dollar.

“At these levels, I would be a seller,” said Dmitri Petrov, an analyst at Nomura International Plc, whose 2015 ruble forecast was the most accurate according to a Bloomberg survey. “The market may return to the mindset that the government is looking to weaken the ruble to solve fiscal problems.”

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