Ruble's Advance to a Three-Month High Boosts Rate-Cut Wagers

  • Bonds gain, with five-year state debt yields at 20-month low
  • Rabobank sees Bank of Russia cutting rate to 10.5% on Friday

The ruble rose to a three-month high and bonds advanced as oil gained and dovish statements from the Federal Reserve spurred bets Russia will cut interest rates as soon as Friday.

The currency of the world’s biggest energy exporter added 1.3 percent to 68.23 per dollar by 6:18 p.m. in Moscow while yields on five-year government bonds fell to the lowest since July 2014 after U.S. policy makers scaled back the number of likely increases to the price of money this year, stoking appetite for higher-yielding assets in emerging markets. Crude reached $41 a barrel, up 46 percent since reaching a 13-year low on Jan. 20.

Wagers for a cut in Russian borrowing costs are at their highest since November as oil’s rebound sparked a month-long rally in the ruble, helping damp inflationary pressures. The central bank now has room to lower its benchmark rate of 11 percent for the first time since July and slow gains for the ruble, which is showing signs of being overbought, Rabobank said.

“With the ruble rallying to the highest level so far this year, underpinned by a rebound in oil prices, all eyes are on the Bank of Russia,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. “It is a very close call, but I expect the central bank to resume its easing cycle and to cut the benchmark rate by 50 basis points to stem the pace of the ruble’s appreciation.”

The ruble’s 10 percent ascent against the dollar this month, the biggest move among global currencies tracked by Bloomberg, pushed its 14-day relative strength index to 69 on Thursday, the highest since October. That’s approaching the level of 70, which some analysts view as a sign a security is poised to reverse direction.

Rabobank’s Matys is among just seven economists of 42 surveyed by Bloomberg who expect the central bank to reduce the key rate by 50 basis points tomorrow, with the remainder predicting no change. A separate poll by Tradition shows more than 70 percent of traders expect the central bank to keep rates on hold. Forward-rate agreements show derivatives traders are betting on a 83 basis-point rate reduction in the next three months, the biggest wagers since November.

Brent crude, used to price the country’s main export blend, rose 2.4 percent to trade at $41.31 in London. Russia receives about half of its budget revenue from oil and natural gas sales.

Five-year government bonds rose for a second day, pushing the yield down 28 basis points to 9.22 percent, the biggest one-day move in two weeks. The Micex Index of stocks climbed for a second day, adding 1 percent to 1,890.

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