Ruble Strengthens as Oil Rally Buffers Surprise Russian Rate Cut

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The ruble gained for the first time in four days as higher oil prices offset the affect of a surprise interest-rate reduction last week. Russian government bonds jumped, pushing yields to a six-week low.

The currency traded 0.6 percent stronger at 68.47 a dollar by 8 p.m. in Moscow, erasing a drop of as much as 2.3 percent. The central bank’s rate cut on Jan. 30. pushed bonds higher for a second day, with the yield on five-year ruble-denominated notes falling 32 basis points to 14.55 percent, the lowest since Dec. 15.

Bank of Russia Governor Elvira Nabiullina is trying to keep lending flowing in an economy on the brink of contraction, while avoiding a deeper currency slump that’s already punishing local companies. Brent crude jumped as much as 5 percent before paring gains to 0.4 percent higher at $53.21 per barrel on speculation a strike among U.S. refiners is lifting prices.

“For the moment, the central bank’s risky strategy appears to have paid off,” Phoenix Kalen and Evgeny Koshelev, analysts at Societe Generale SA, said in a research noote. “We are inclined to think that this ruble resilience is less a reflection of the market’s endorsement of the legitimacy/wisdom of the central bank’s rate cut, but primarily a consequence of the surge higher in crude oil prices since Friday.”

Russia, the world’s biggest energy exporter, receives about half of its budget revenue from the oil and natural gas industries. Tumbling crude prices contributed to the ruble’s 46 percent collapse last year as they exacerbated sanctions imposed by the U.S. and European Union over Ukraine.

Wine, Jeans

The ruble, which lost 13 percent against the dollar last month, the worst-performance among 31 major currencies tracked by Bloomberg, may face renewed downward pressure as companies convert the local currency into dollars and euros to pay $10.2 billion of foreign-currency this month.

The ruble’s retreat has sent the cost of imports soaring, prompting the Rusimport trading house, Russia’s second-largest French wine importer, to file for bankruptcy, according to court documents and a report by the Kommersant newspaper. The currency’s weakness also scuppered a plan by Russian clothes retailer Gloria Jeans to sell a 25 percent stake for $250 million to investors including Goldman Sachs Group Inc, according to the Vedomosti newspaper.

Last week’s rate cut, which left the central bank benchmark at 15 percent, also stoked concern that Nabiullina is bowing to government pressure to foster growth by reducing borrowing costs, further weakening appetite for the currency.

Budget Boost

“The sudden rate cut and lack of clarity behind the central bank’s policy continue to weigh on the ruble,” Andrey Vashevnik, who manages $25 million as the chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone. “Large foreign-debt repayments will pressure the currency. I expect the ruble to fall lower as there are no fundamental support factors.”

At the same time, the government is netting more rubles for the budget since oil revenue is earned in dollars. Brent traded at 3,671.7 a barrel in ruble terms Monday, close to the average price for the past 12 months and the highest since December. Russia’s Reserve Fund swelled by 919 billion rubles ($13.4 billion) in January due to the foreign-currency revaluation, the Finance Ministry said in a statement today.

“Brent has risen to $55 and is boosting the ruble,” Sergey Fishgoyt, the deputy head of foreign-exchange trading at Otkritie Bank in Moscow, said by e-mail. “This move is most likely short-term.”

Fighting between Ukraine government forces and pro-Russian rebels in the regions of Donetsk and Luhansk in eastern Ukraine has intensified, deepening the worst standoff between Russia and the U.S. since the Cold War. Ukrainian President Petro Poroshenko called on Sunday for a truce in the conflict.

The Micex Index fell 1.4 percent to 1,625.31. The dollar-denominated RTS Index climbed 1.2 percent to 745.82.