Ruble Tracks Oil Drop as Deutsche Bank Joins VTB Seeing Recovery

  • VTB 24 expects ruble to strengthen to 64 by year-end
  • Oil prices will rise next year, Deutsche Bank analysts say

Russia’s ruble weakened for a seventh day after Brent crude temporarily fell below $43 a barrel, exposing risks to an exchange rate that VTB Group and Deutsche Bank AG predict will stage a turnaround.

The currency depreciated 0.3 percent to 67.7200 per dollar by 4:30 p.m. in Moscow, catching up with Wednesday’s 4.4 percent retreat in oil prices to a March 2009 low of $42.49 a barrel. Crude recovered today as oil producing nations from Iran to Venezuela placed pressure on Saudi Arabia to cut output when OPEC meets on Friday. A rebound in the price of the commodity will improve the outlook for Russian assets, Deutsche Bank said in a research note.

Analysts at the German lender said that at above 65 rubles per dollar, the dollar-ruble rate looked at least 10 percent too expensive, while VTB 24, a unit of Russia’s second-biggest lender, projects the currency will strengthen by almost 6 percent by year-end. The bullish calls signal a turnaround for a currency that’s lost more than a fifth of its value in the past 12 months amid a rout in Russia’s main export.

Today’s drop in the ruble "is purely a reaction to oil," VTB 24 PJSC analyst Alexey Mikheev said. He is projecting that the Federal Reserve will refrain from raising interest rates this month, giving a further boost to Russian assets and sending the ruble to 64 against the dollar by Dec. 31.

Fed Outlook

Futures traders project a 74 percent likelihood for the Fed to end almost seven years of near-zero interest rates, according to data compiled by Bloomberg. Deutsche Bank expects oil prices will stabilize next year, with a long-term equilibrium price for Brent of $65 a barrel, analysts including Daniel Brehon and Gautam Kalani said in a note received by e-mail on Thursday.

The ruble fell 2.1 percent against the euro after European Central Bank President Mario Draghi pledged to prolong its asset-buying program for as long as necessary in the single currency region.

A report on Thursday that Saudi Arabia may propose an eventual OPEC production cut of 1 million barrels a day is baseless, a Saudi official said, asking not to be identified because the matter isn’t public.

Russian stocks advanced, with the benchmark Micex Index climbing 1 percent. Bonds fell, pushing the five-year yield higher for the first time this week. The rate climbed five basis points to 10.01 percent.

Russia should prepare to live with lower oil prices and international sanctions against its companies for a long time, President Vladimir Putin said today in his annual state-of-the-nation address. He highlighted some improvement in the recession-hit economy as inflation eases even as people’s living standards remain under pressure.

“The situation is definitely difficult, but not critical,” he said. “We are already seeing positive trends.”

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