Ruble Gains on Higher Oil Price as Citi Sees Currency at Risk

  • Citi sees ruble falling beyond 70 per dollar if oil declines
  • Bank of Russia seen leaving key rate unchanged on Friday

The ruble and Russian bond prices rose as oil halted its decline near the lowest price in more than six years.

The exchange rate, which has fallen 6.1 percent in the past month, strengthened 0.5 percent per dollar to 69.0750 by 6:41 p.m. in Moscow. Brent crude, the benchmark for the country’s main export blend, climbed 2.6 percent at $41.32 a barrel following three days of declines.

The ruble’s recovery “is mainly related to the stabilization of oil prices around the $40 level,” said Ivan Tchakarov, a Moscow-based economist at Citigroup Inc., the world’s largest trader of currency. “If oil continues falling, the ruble will fall" past 70 and Russian policy makers won’t resist the weakening, he said.

A decision to leave monetary policy unchanged would offer “only marginal" support to the ruble, Tchakarov said today. On Tuesday, he reversed his earlier prediction the Bank of Russia will cut its key rate 50 basis points to 10.5 percent and now expects no change.

Rate Forecasts

Policy makers will probably leave rates on hold at 11 percent for a third consecutive meeting, according to the median of 34 estimates in a Bloomberg survey. ING Groep NV and Sberbank CIB argued on Tuesday the currency is too expensive relative to the oil price and said they expect the central bank to cut rates on Friday.

The price of Brent in ruble terms fell to the lowest level since February 2009 on Monday, making it harder for the government to generate enough revenue to fill its biggest budget shortfall in five years. The price was at 2,837 on Wednesday, below the 12-month average. The correlation between the ruble and Brent has been rising in December, and reached 0.76 on Wednesday, while a reading of 1 would mean the two are trading in lockstep.

The yield on Russia’s five-year government bond fell eight basis points to 10.15 percent. The Finance Ministry sold 13.3 billion rubles of August 2023 inflation-linked bonds today of 20.4 billion rubles offered. Bids exceeded the amount sold by 1.4 times.

The benchmark Micex Index of stocks rose 0.8 percent to 1,732.79, with Sberbank PJSC gaining 3.8 percent.

Russia’s 11-month current-account surplus widened 12 percent from a year earlier to $60.8 billion, the central bank said on its website today. Net capital outflow for the period slowed to $53 billion from $118.7 billion a year earlier.

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