- Currency catching up with crude after verbal interventions
- Bonds fall, pushing five-year yields to highest in two weeks
The ruble extended its worst losing streak of this year, pressured by verbal intervention from government leaders and crude trading below $45.
The Russian currency dropped 0.9 percent to 65.9937 against the dollar by 6:46 p.m. in Moscow, the lowest in a month, and extended a six-day decline to 5 percent. Though the ruble depreciated 3.1 percent in July, it still outperformed a near 10 percent drop in crude. The money Russia earns in local currency from each barrel of oil, increased 1 percent to 2,955 rubles.
“The ruble is finally catching up with the oil move," said Alexei Egorov, an analyst at Moscow-based Promsvyazbank PJSC. "The government really needs the oil in rubles to be at a higher level. The current situation is quite unpleasant for the budget."
The currency has weakened since President Vladimir Putin rattled investors last week by telling the prime minister to monitor its strengthening, even as volatility sweeps through commodity markets. Russia is running its widest budget deficit since 2010 and needs to generate an average of 3,165 per barrel in rubles this year in order to meet its spending target.
“The drop in the ruble against the dollar is driven by various factors, including a fall in oil, external backdrop, which is less conducive for risky assets, verbal intervention from Russian officials,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London.
Andrey Belousov, an adviser to Putin, said last Thursday the Russian currency’s strength relative to Brent endangers the budget and the competitiveness of local companies. Putin on July 19 called on the prime minister to monitor the ruble’s strengthening despite the volatility in commodities.
The Bank of Russia has responded by saying it won’t influence the exchange rate and reiterated its commitment to maintaining a free-floating currency. Policy makers cut the benchmark rate in June by 50 basis points, to 10.5 percent, the first reduction in almost a year.
“The central bank should cut rates to further discourage speculators from betting on the ruble as a high-yielding currency,” Matys said. Eight out of 37 economists, including Rabobank, forecast the central bank will cut the benchmark rate by 50 basis points on Friday.
Russian debt fell, with yields on five-year government bonds rising two basis points to 8.87 percent, the highest in more than two weeks. The Finance Ministry will offer 25 billion rubles of bonds tomorrow, including 15 billion rubles of September 2026 bonds and 10 billion rubles of January 2020 floating-rate notes. The Micex Index added 0.4 percent.