Russia's Ruble Falls Most in Emerging Markets on Iran Comments

Updated on
  • Currency could revisit February lows as oil declines: Rabobank
  • Ruble is expected to remain 2nd-most volatile EM currency

The ruble weakened the most in emerging markets after oil declined as ministers from Iran and Saudi Arabia signaled they’re unwilling to curtail production.

The currency fell 2.9 percent to 77.475 per dollar by 6:05 p.m. in Moscow, the biggest decline in three weeks, as Brent crude retreated 1.8 percent to $32.66. The proposal between Russia and Saudi Arabia to cap output at January levels puts “unrealistic demands” on Iran, Oil Minister Bijan Namdar Zanganeh said on Tuesday, according to the ministry’s news agency Shana.

Oil’s collapse to a 12-year low amid a global glut has weakened the ruble to unprecedented levels, put Russia’s economy on course for a second year of contraction and forced the government to consider budget cuts. If Brent falls below $32.68 a barrel, the ruble may drop back to this month’s low of 80.64 per dollar, according to Rabobank.

“Comments from Iran’s oil minister fueled market doubts that other oil producers will respect the agreement to freeze oil output,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London.

Saudi Arabia won’t cut supply as it doesn’t trust fellow exporters to follow suit and believes high-cost producers should bear the burden of rebalancing markets, Ali Al-Naimi said Tuesday.

“Oil is trying to fall below $32, there’s risk-off environment across global markets, so the ruble’s decline isn’t surprising today,” Yury Tulinov, head of research at Societe Generale’s Russia unit Rosbank PJSC in Moscow, said by e-mail. Tulinov sees the ruble at 75 against the dollar and oil at $35 by the end of March.

Volatility Persists

Three-month implied volatility, a measure of exchange-rate swings used to price options, is the highest in emerging markets at 26 percent after Argentina’s peso, suggesting investors anticipate ruble price swings will persist, data compiled by Bloomberg show.

While the Russian government discussed using 250 billion rubles ($3.2 billion) from the so-called “anti-crisis’’ fund to support the economy, the fund doesn’t have enough money, Kommersant newspaper reported today, citing a letter from Finance Minister Anton Siluanov to Prime Minister Dmitry Medvedev.

Five-year government bonds rose, pushing the yield down five basis point to 10.04 percent. The Micex Index of shares fell 1.9 percent to 1,787.56. Russian markets were closed on Tuesday for a national holiday.

“The finance minister is in a tough spot as oil prices are likely to be significantly lower than assumed in the 2016 budget,” Matys said. “Further spending cuts are inevitable.”