Ruble's Advance for Second Day Spurs Talk Central Bank May Act

  • Russian lawmakers need `weak, stable' currency: Promsvyazbank
  • Gazprom gains amid demand for 50% of net paid out in dividend

The ruble advanced as oil rose, spurring bets the central bank may try to curb the currency’s gains in order to make it easier for the government to fund the budget.

The Russian currency jumped 0.9 percent to 65.555 against the dollar at 5:47 p.m. in Moscow, poised for its strongest close since November, as Brent crude added 2.8 percent to $44.09 a barrel in London amid a strike in Kuwait that cut output. The ruble has surged 20 percent in the past three months, the best performer in emerging markets, as oil rebounded from a 13-year low in January.

Even after crude oil recovered, the world’s biggest energy exporter is running the widest budget deficit since 2010, with the government receiving 10 percent less per barrel of oil in ruble terms than it had anticipated for the 2016 state budget. A strengthening ruble with oil below $50 a barrel will worsen the mismatch, Promsvyazbank PJSC said.

“The ruble is following oil very closely,” said Alexei Egorov, an analyst at Moscow-based Promsvyazbank. “The Russian currency may strengthen beyond 65 with oil, but I’m afraid at those levels the central bank may start buying dollars. The situation with the budget is catastrophic, that’s why the government needs a weak and stable ruble."

Financial Stability

The 60-day correlation between the ruble and Brent crude reached a record 0.85 on Friday and traded at 0.82 on Tuesday. A value of 1 would mean the assets are moving in lockstep. Oil and natural gas account for about a third of Russia’s budget revenue and almost 60 percent of exports.

The Bank of Russia will resume interventions in the currency market only if risks to financial stability arise, central bank governor Elvira Nabiullina said in an interview with Rossiya 24 channel aired today. Attempts to manage the ruble’s exchange rate are “damaging,” she said.

The central bank may react if the ruble strengthens to between 60 and 65, according to Credit Suisse Group AG. The current oil price exceeds the central bank’s base case scenario of $30 for 2016, which would require a reaction from the central bank either through cuts to the benchmark interest rate of 11 percent or through buying dollars or verbally intervening to stem the ruble’s gains, according to Credit Suisse economist Alexey Pogorelov.

Dollar Purchases

“Lately the ruble has been strengthening faster than suggested by the recovery in oil, which is marginally negative for the stability of fiscal policy,” Pogorelov said by e-mail.

The Bank of Russia last stepped into the foreign currency markets in May when the ruble strengthened below 50 against the dollar, purchasing dollars to replenish international reserves. Russia burned through about $90 billion from its cash pile in 2014 as sanctions over Ukraine and falling oil forced policy makers to intervene to slow the ruble’s drop.

The biggest Russia-focused exchange traded fund Market Vectors Russia had $49.1 million outflows on April 18, the biggest since May 8, according to data compiled by Bloomberg.

Five-year government bonds climbed, cutting the yield six basis points to 9.3 percent.

The Micex Index of stocks rose 1.6 percent to 1,922.91. Gazprom PJSC jumped 5.4 percent, the biggest intraday move in 15 months as Prime Minister Dmitry Medvedev signed an order mandating some state companies including Gazprom to pay out 50 percent of net income in 2015 dividends.

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