Ruble Weakens to Four-Year Low Against Basket as Brent Declines

The ruble weakened to the lowest in almost four years against the central bank’s basket of currencies as oil declined and after Federal Reserve officials signaled it may soon reduce bond purchases.

The ruble depreciated 0.1 percent to 37.9227 against Bank Rossii’s dollar-euro basket by 6 p.m. in Moscow, when the central bank stops it market operations. That’s the lowest level since September 2, 2009.

Brent crude fell for a fourth day, losing 0.4 percent to $107.72 a barrel. Oil and gas revenue contribute about 50 percent of Russia’s state budget. Fed Bank of Chicago President Charles Evans said yesterday he “would clearly not” rule out a decision to begin next month curbing the $85 billion of monthly bond purchases that have helped fuel an emerging-market rally. JPMorgan Chase & Co.’s Emerging Markets Currency index fell by 0.2 percent to 89.93.

“All emerging-markets currencies are feeling unwell,” Andrei Mishko, foreign exchange trader at OAO MDM Bank in Moscow, said by phone. “Why should the ruble feel better?”

The ruble weakened 0.2 percent against the dollar to 33.0125 and fell 0.1 percent versus the euro to 43.9180. Eighteen of 24 emerging-market currencies tracked by Bloomberg fell against the greenback today.

Don’t Chase

Investors shouldn’t try to “chase the ruble weaker” from current levels as the central bank might step up interventions and refrain from lowering interest rates at an Aug. 9 meeting, Morgan Stanley analysts led by Rashique Rahman said in an e-mailed note. Bank Rossii will keep the refinancing rate unchanged at 8.25 percent, according to the median forecast of 19 economists surveyed by Bloomberg. Eight call for a decrease of 25 basis points.

Bank Rossii sold the equivalent of 6.6 billion rubles in foreign currency on Aug. 5, bringing the total amount spent since interventions began on May 29 to 281.5 billion rubles, central bank data shows. The central bank increased interventions to 10.72 billion rubles on August 2, when the ruble traded below 37.85 in early session, the regulator’s data show.

“With some expectation in the market for a cut, an on-hold decision along with a backdrop of increased intervention may bring about some relief for ruble,” Morgan Stanley analysts said.

According to central bank data, about three fourths of daily intervention volumes are targeted selling, and the rest are so-called non-targeted interventions, conducted to smooth out excessive ruble volatility. As soon as the volume of non-targeted interventions reaches $450 million, the central bank moves the currency corridor by 5 kopeks. In July, it moved it three times to the current 31.85-38.85 range, according to a statement on Bank Rossii’s website.

Bonds Gain

Russian government notes gained after the Finance Ministry sold out auctions of 10-year and three-year bonds today.

The ministry sold 10 billion rubles ($303 million) of OFZs due January 2023 at a weighted-average yield of 7.38 percent and the same amount of notes due May 2016 at a yield of 6.26 percent.

There was probably “good demand from foreigners,” Anton Nikitin, an analyst at VTB Capital, said by e-mail. “However, it’s close to what the market was expecting, so the trend will rather be determined by global markets going forward.”

The yield on benchmark OFZ bonds due February 2027 fell three basis points, or 0.03 percentage point, to 7.71 percent. The yield on the 2023 bond dropped three basis points to 7.35 percent.

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