Ruble Drops Most in Week Since May After Putin Warns on Currency

  • Government bonds fall for a sixth day as oil trades near $45
  • UralSib: currency may weaken without central bank intervention

The ruble headed for its biggest weekly decline in two months after Russian President Vladimir Putin drew attention to the currency’s strength, prompting speculation the central bank or finance ministry will take steps to weaken the exchange rate.

The currency of the world’s biggest energy exporter weakened 0.8 percent to 64.87 per dollar by 7:05 p.m. in Moscow and government bonds fell for a sixth day, as oil traded near $45 a barrel. The ruble’s five-day decline of 2.1 percent trails a 4.8 percent plunge by crude, a mismatch that’s stoked concern the currency’s strength relative to oil endangers the budget and the competitiveness of local companies.

Putin on Tuesday instructed Prime Minister Dmitry Medvedev to pay attention to the currency’s moves relative to the volatility of oil. By easing pressure on inflation, the ruble’s 11.7 percent rally this year is opening the way for the central bank to keep cutting interest rates to stimulate an economy caught in recession. A weaker currency is also beneficial for Russia’s budget since it means the government gets more per barrel of crude sold abroad.

“The central bank could still give the ruble appreciation a greater focus in the policy-making process, which could support our expectations of further monetary easing in the near future," Bank of America Economist Vladimir Osakovskiy said. The central bank is unlikely to intervene directly, he said in a research note.

Policy Meeting

The central bank meets on July 29 to review monetary policy, with forward-rate agreements near the highest since June 13, with data showing derivatives traders predicting 60 basis points of reductions to the central bank’s base rate of 10.5 percent over the next three months.

“It’s unlikely there will be any interventions and the ruble will just correct in August by itself,” said Dmitry Dudkin, head of research at UralSib Capital in Moscow. “In August we traditionally see stronger outflows as companies pay dividends and people go abroad for holidays. This may weaken the ruble. The government’s anxiety can be explained by the large fiscal deficit.”

The central bank may lower rates 50 basis points at meeting next week to reduce the carry trade that is attracting speculative inflows, Rabobank analyst Piotr Matys said today in a research note.

Brent oil fell 1.8 percent in London to $45.35 per barrel, the lowest level since May 9. Yields on 10-year notes rose nine basis points to 8.65 percent, the highest level since June 17.

The Micex Index of shares fell 0.1 percent to 1,926.

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