- Ruble is second-biggest gainer in emerging markets in 2016
- Surge is now settling down, nation’s CEOs foresee calm
War, sanctions and a shift to a free float have sent the ruble on a wild ride over the past two years. Now, some of Russia’s biggest companies see better times ahead.
Bosses at Polyus PJSC, the country’s biggest gold producer, top coal miner SUEK and the Renova Group conglomerate say they’re finally able to count on a stable ruble when planning their businesses as the economy shakes off the longest recession since President Vladimir Putin first came to power in 2000. Traders agree: a measure of anticipated volatility has fallen to the lowest since the Bank of Russia stopped managing the currency in November 2014.
The newfound calm suggests investors are finally putting the Ukraine crisis of two years ago behind them to focus on an improvement in business confidence and an 80 percent decline in capital outflows. Russian assets are also in demand for the relatively high yields they offer in a world of below-zero interest rates, helping offset stagnant oil prices.
“The ruble has finally got its act together,” Viktor Vekselberg, Russia’s fourth-richest man and a collector of Czarist-era Faberge eggs, said in an interview in the Pacific port of Vladivostok. “Should there be no strong fluctuations in oil, the ruble will be at slightly more than 65” per dollar, or close to its level of about 64 in Moscow on Thursday.
Vekselberg, whose Renova Group owns assets ranging from stakes in metals producers to a Swiss equipment company, has a fortune that the Bloomberg Billionaires Index values at more than $14 billion.
Stability in the ruble is already setting in, with the currency of the world’s largest energy exporter climbing steadily from 67 per dollar at the end of the first quarter. It gained faster earlier in the year, and is up 14 percent in 2016, trailing behind only Brazil’s real in emerging markets. That’s even as oil hovers around $50 a barrel, about $10 less than the middle of last year.
That’s quite a change from January, when the ruble tumbled to a record 85.999 as crude prices collapsed, and 2014-15, when the currency lost more than half its value. Confidence is improving after the shock of the free float became Russia’s biggest currency crisis since the debt default of 1998, and contributed to the failure of companies including the second-largest airline.
Implied three-month ruble volatility has fallen to 13.35 percent, data compiled by Bloomberg show. That’s the lowest since about two weeks before the free float was introduced as a way of preserving Russia’s reserves, which were being used to prevent the local currency from tumbling. This year, the ruble has seen the third-biggest drop in anticipated price swings among 21 developing-nation currencies.
“Fluctuations of 15 percent are an absolutely normal thing for any currency in the world that’s in free float,” said Vladimir Rashevsky, CEO of Russian coal producer SUEK, who sees the ruble continuing to trade in a range of 60 to 70 per dollar.
After shrinking 3.7 percent in 2015, Russia’s economy will contract 0.7 percent in 2016 and return to growth next year, according to analysts surveyed by Bloomberg. Net capital outflows slowed to $10.9 billion this year through July, from $53.3 billion a year earlier, according to the Bank of Russia.
As well as improvements in the domestic economy, what’s helped turn the ruble around are the easy-money policies of global central banks. That puts Russian assets in demand as investors seek to take advantage of a benchmark interest rate of 10.5 percent, which when adjusted for inflation is the highest in the world after Belarus.
The outlook of Russia’s top executives will allay concerns of a pull-back after the currency’s rally. Unlike other emerging economies such as Brazil, where the central bank has stepped up efforts to limit the real’s appreciation, the Bank of Russia hasn’t bought foreign currency for a year, pledging to avoid intervention unless the ruble’s swings threaten financial stability.
While Putin has in the past sent conflicting signals about the ruble, he said in a Bloomberg interview last week he didn’t intend to sway monetary policy. That’s despite the stronger ruble straining the budget by shrinking the value of oil sales in local-currency terms.
The currency is “de facto stable,” said Polyus Chief Executive Officer Pavel Grachev. “For this year’s budget, we projected the ruble at 65 per dollar. It’s possible to assume that similar levels will be used for next year.”