Top Ruble Forecaster Sees Parachute Over Currency in Free-fallby
BNP analyst says Fed delay to stem losses caused by oil crash
Consensus calls for another 4% drop in ruble through December
While the majority of his peers think the ruble is in free-fall, the currency’s most accurate forecaster sees a safety net appearing.
Russia’s currency will probably stay near 65.3 per dollar during the rest of 2015, said BNP Paribas SA’s Piotr Chwiejczak, who topped Bloomberg’s third-quarter rankings on the ruble by accurately predicting the reversal of its world-beating performance. Once again, Chwiejczak is divided from the consensus, which calls for the ruble to end the year at 68.40, or 4 percent weaker. The ruble traded at 62.16 at 4:36 p.m. in Moscow after strengthening 1.9 percent. The rankings are based on a four-quarter rolling basis.
The ruble will stop falling because the Federal Reserve has prolonged an era of zero benchmark rates that favors riskier assets, the BNP Paribas strategist said. At its meeting last month, the U.S. central bank decided to postpone its first borrowing-cost increase in nine years amid signs the economic recovery is stalling.
"We now expect the Fed to start raising interest rates only in March, which gives a breathing space for both emerging-market assets in general and commodities producers in particular," Chwiejczak said by e-mail on Oct. 5.
While Chwiejczak sees the ruble’s losses capped, he doesn’t see room for gains. The central bank, whose stated aim is curbing inflation, would also move to stem any ruble appreciation that makes oil exports uncompetitive, he said. The Russian Finance Ministry has said it’s prepared to buy U.S. dollars on the open market once oil exceeds $50 a barrel to limit volatility of the ruble real exchange rate and replenish reserves. Brent crude traded at $49.05 per barrel yesterday, a decline of 46 percent in the past year.
“In ruble terms, oil is now trading around 3,000 rubles per barrel, and I don’t think they want it to go lower,” Chwiejczak said. “So, if there’s an appreciation pressure, the Bank of Russia will use that for building up reserves and cutting rates."
Rate cuts are also likely to weigh on the ruble. Policy makers are expected to resume cutting rates to boost an economy reeling from the crash in the price of oil, its biggest export, and the first recession since 2009. After dialing back last year’s emergency rate increase with six percentage points of cuts since January that brought its benchmark to 11 percent, the Bank of Russia will lower rates by another 50 basis points in the fourth quarter, according to the median forecast of 30 economists surveyed by Bloomberg. It will next review borrowing costs on Oct. 30, with the year’s final policy meeting on Dec. 11.
The no. 2 ranked forecaster, Nomura International Plc’s Dmitri Petrov and no. 3, Royal Bank of Scotland’s Tatiana Orlova, see an interventionist government as a greater factor pulling the ruble down in the fourth quarter. Nomura is targeting a level of 70 by year. More bearish, RBS is forecasting 76, among the two weakest forecasts of a total 46.
“A potential appreciation would be met with the restart of the Bank of Russia purchases, which will push the dollar higher again,” Petrov said. “Pre-Fed” jitters will cause the ruble to weaken at the end of the year, he said.
The government’s goal of rekindling growth by replacing foreign imports with locally-made goods would come under threat from a stronger ruble, Orlova said Sept. 30 in a note to clients.
"We don’t think that the authorities will welcome significant ruble appreciation," Orlova wrote.
The ruble has lost 45 percent of its value against the dollar since February 2014 before Russia started its campaign in Ukraine, which resulted in Western sanctions against the nation’s largest companies and banks.