Ruble Weakens as Crude Oil Drops, Morgan Stanley Cuts

The ruble weakened against the dollar as oil declined and Morgan Stanley cut the Russian currency to neutral from overweight. Russian Eurobonds fell to the lowest in more than five months.

The ruble declined 0.4 percent to 29.9750 against the dollar by 7 p.m. in Moscow. Yield on Eurobonds maturing in April 2042 rose six basis points to 4.58 percent. The yield has risen 41 basis points from a record low of 4.17 percent on Dec. 3.

Oil, Russia’s main export, declined 1.3 percent to $96.46 per barrel in New York trading. Morgan Stanley cut the ruble to neutral after recommending an overweight position since September, according to an e-mailed report today. Investors may sell the Russian currency once direct settlement of ruble-denominated debt starts through Euroclear Bank SA and there are signs the Central Bank will loosen interest-rate policy, according to the note.

“The case for further near-term outperformance is now weakening,” Morgan Stanley analysts James Lord and Meena Bassily wrote in a note to clients.

The ruble strengthened 0.5 percent against the euro to 40.6690 leaving it up 0.1 percent at 34.7873 against a basket of dollars and euros, which the central bank uses to curb exchange rate moves that can crimp companies’ competitiveness.

Eurobonds Fall

Prices of U.S. Treasuries fell for a second day with the benchmark 10-year yields climbing to 2.06 percent, the highest level in almost 10 months. U.S. payrolls increased by 157,000 in January, following a revised gain the previous month, the Labor Department said Feb. 1.

“People started selling U.S. Treasuries on Friday, and Eurobonds are following today,” Dmitry Dorofeev, analyst at BCS Financial Group, said by phone from Moscow.

The extra yield investors demand to hold Russian Eurobonds due 2042 maturity over 30-year Treasuries increased to 136 points from 106 points on Jan. 3, data compiled by Bloomberg show. The bond will start to look attractive if the premium climbs beyond 150 points, Dorofeev said.

Bank Rossii announced its board of directors will hold an interest rate meeting on Feb. 12. January consumer price inflation, which will be published either tomorrow or the day after, is the last significant data that may help forecast the central bank’s decision, according to VTB Capital analysts.

The annual inflation rate for January may accelerate to 6.9 percent from 6.6 percent in December, according to a Bloomberg survey.

Bank Rossii has kept rates unchanged for four months after an unexpected increase in September. High borrowing costs are “concerning,” President Vladimir Putin said Jan. 31 at a government meeting.

Weak economic growth at the end of 2012 and a year-on-year drop in investment may push the central bank to take a “more dovish stance,” Maxim Oreshkin and Daria Isakova, analysts at VTB Capital in Moscow, wrote in a note today.

The central bank is likely to keep rates on hold at this month’s meeting until price growth peaks, making an interest rate cut in March or April, the VTB analysts wrote.

(Corrects to show bank refers to ruble profit-taking in third paragraph of story originally published Feb. 4.)
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