Ruble Gains as Slow Path to Easing Keeps Carry Traders Invested

  • Central bank hawkishness surprise to everyone: Morgan Stanley
  • Rate cut Friday tempered by assurance it was the last of 2016

The ruble gained with oil while the central bank’s slow path to easing was welcomed by carry traders who use borrowed dollars to fund purchases of Russian assets.

Russia’s currency advanced 0.9 percent against the dollar to 64.53 by 3:35 p.m. in Moscow, retracing Friday’s decline. Crude oil rose 1.3 percent in London trading to $46.35.

The world’s most profitable currency for carry traders this year after Brazil can prevail after Friday’s rate cut, thanks to elevated real rates and a fair value relative to oil, according to Morgan Stanley. The strategy is on pace for fourth-quarter gains forecast at 2.8 percent, the third highest most among emerging-market peers, after delivering a 22 percent return in 2016. While the Bank of Russia lowered its benchmark by 50 basis points to 10 percent on Friday, it said it was unlikely to continue easing until the first half of 2017.

"The statement was more hawkish than anyone could have expected," Credit Suisse Group AG economist for Russia Alexey Pogorelov said in a note to clients. "The decision is marginally positive" for the ruble as it keeps the carry trade intact, he said.

Yields on government ruble bonds due February 2027 rose three basis points to 8.25 percent, extending a 10 basis-point jump on Friday.

The Micex index of major stocks rose 0.3 percent to 1,988, snapping seven days of declines.

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