Ruble's Worst Streak in Three Months Heightens Inflation Risks

  • Central bank likely to leave rates unchanged, Rabobank Says
  • Aeroflot shares slide on anti-monopoly service criticism

The ruble headed for its longest losing streak in more than three months as oil prices extended declines, stoking concern the commodity’s slide and sanctions on Turkish food imports could quicken inflation.

The currency weakened 0.8 percent against the dollar to 67.119 by 6:02 p.m. in Moscow, retreating for a sixth day, as Brent, the benchmark for Russia’s main export blend, fell 2.1 percent in London trading before an OPEC meeting.

The ruble’s drop this quarter has led derivatives traders to pare bets the central bank will cut its key rate at its next meeting on Dec. 11. Russia’s ban on Turkish food in retaliation for it shooting down a warplane over Syria may fuel price growth near the fastest pace in 13 years.

“The sanctions imposed on Turkish food could keep Russia’s inflation at higher levels for longer than previously anticipated,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. “If that proves to be the case, it would prevent the central bank from resuming the easing cycle and could prolong recession, which would be negative for the ruble."

Annual inflation eased to 15.6 percent in October from a 13-year high of 16.9 percent in March, still more than 10 percentage points above the country’s medium-term target. The ruble is the worst performing currency in emerging markets in the past six months.

Bond Returns

Russia’s government OFZ bonds have brought investors the best return this year in emerging markets. No change in the central bank’s key rate in December will limit that rally, Matys said.

Five-year generic government bonds were little changed on Wednesday, with the yield at 9.96 percent. Russia’s Finance Ministry sold all 7.2 billion rubles of February 2027 bonds and all 7 billion rubles of January 2020 floaters at auctions on Wednesday, according to data compiled by Bloomberg. Demand for the floaters was almost four times more than the offering.

“Amid rising inflation risks following the embargo of Turkish food, fixed-coupon OFZs look expensive relative to the floaters,” Dmitriy Gritskevich, an analyst at Promsvyazbank PJSC in Moscow, said by e-mail. “If expectations regarding the central bank’s rate cuts potentially change, OFZs could significantly decline."

The Micex Index dropped 0.3 percent to 1,767.35. Aeroflot PJSC slumped 5.9 percent. The head of Russia’s anti-monopoly watchdog on Wednesday criticized Russia’s biggest airline for its ticket pricing and said the agency will discuss its practices with Aeroflot management.

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