Ruble Advances on Tax Flows as Rate Cut Talk Stokes Bond Rally

The ruble strengthened for a second day as Russian exporters bought the currency ahead of tax payments, while government bonds rallied on speculation that Bank Rossii will cut interest rates.

The ruble appreciated 0.9 percent against Bank Rossii’s target basket of dollars and euros to 35.4326 by 6 p.m. in Moscow. It gained 0.8 percent versus the dollar to 31.2020. The yield on OFZ bonds due July 2022 fell three basis points, or 0.03 percentage point, to a record low 6.50 percent.

Crude oil, Russia’s main export earner, gained 0.3 percent in London to $102.05 per barrel after rising 1.4 percent yesterday. The ruble is appreciating as companies gather funds to pay mineral extraction taxes and excise duties this week and ahead of corporate income tax payments on April 29.

The ruble advanced “thanks to selling of export revenue before the payment of mineral extraction tax, rising oil and demand for OFZs from foreign investors,” OAO Rosbank analysts, led by Vladimir Kolychev, said in a note today.

The Finance Ministry has sold out three OFZ bond auctions in a row, raising 105 billion rubles ($3.4 billion) in total, according to data published on its website. Slowing economic growth and moderating inflation is piling pressure on the central bank to lower interest rates, which is feeding demand for OFZ debt.

Russia is currently the most overweight country in portfolios of emerging-market bond managers, Morgan Stanley analysts said today, citing EPFR Global data.

Bank Rossii said it spent the equivalent of 2.22 billion rubles selling foreign currency and buying rubles on the market on April 23. Today’s strengthening took the ruble out of the central bank’s “intervention zone” after it spent 14.9 billion rubles between April 15 and April 22, data on the official website show.

The ruble may weaken before public holidays at the start of May, Artem Roschin, a trader at Aljba Alliance, said by phone from Moscow. “Many players will prefer to leave positioned in hard currency,” he said.

Before it's here, it's on the Bloomberg Terminal.