Russian Ruble Gains on Western Stimulus as Ukraine Tension Eases

The ruble strengthened to a two-week high on optimism U.S. and European monetary policy will boost the appeal of Russian assets and as prospects for peace in Ukraine improved.

The currency gained for a fourth day, appreciating 0.5 percent to 39.8702 against the central bank’s target basket of dollars and euros by 6 p.m. in Moscow, the strongest since May 26. Ruble-denominated government bonds due in February 2027 fell for the first time in almost a week.

Russia’s currency rose 1.4 percent last week and stocks entered a bull market after the European Central Bank unveiled unprecedented stimulus measures including negative deposit rates to ward off deflation. Ukrainian President Petro Poroshenko, sworn in a day after discussing a cease-fire proposal with Russian counterpart Vladimir Putin on June 6, said violence in eastern regions must end this week as peace talks began.

“The ruble’s gaining further on expected continuation of loose monetary policy in developed countries and subsiding geopolitical tensions, meaning fewer additional risks for the domestic economy,” Vladimir Kolychev, economist for Russia and the Commonwealth of Independent States at VTB Capital in Moscow, said in e-mailed comments.

The ruble has strengthened 1.5 percent versus the dollar this month, trimming this year’s depreciation to 4.4 percent, the third-worst performance among 24 emerging-market currencies monitored by Bloomberg. A U.S. labor-market report last week signaled the Federal Reserve won’t accelerate monetary tightening, also supporting emerging-market assets.

Bond Declines

The currency advanced 0.7 percent against the euro to 46.6415 and strengthened 0.3 percent to 34.33 versus the dollar.

Yields on 2027 government bonds, known as OFZs, rose from a three-month low, increasing eight basis points to 8.5 percent, the most on a closing basis since May 27. A rally in Russian bonds has pushed the rate down 97 basis points since the start of May.

The debt may face further declines as there are no fundamental reasons for the yield’s return to levels seen in February, which preceded 200 basis points of interest-rate increases by the central bank, according to Dmitry Polevoy, chief economist for Russia and CIS at ING Groep NV in Moscow.

Bank Rossii will probably leave its one-week repurchase rate on hold at 7.5 percent at its June 16 meeting, according to a Bloomberg survey of economists. Inflation may accelerate to as fast as 8 percent in June, Interfax cited the Economy Ministry as saying June 6.

“The OFZ market won’t be able to ignore decoupling from the fundamentals, and the trigger may be the next meeting of the central bank, where we expect to see a continuation of tight monetary policy,” Polevoy said.

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