Ruble Extends Best Start to a Year on Record as $50 Oil Looms

Updated on
  • Bank of Russia may resume key rate cut at one of next meetings
  • Ten-year bond yields drop toward lowest level since July 2014

Russia’s ruble headed for a fourth month of gains, in the best start to a year on record, as oil moved closer to the $50 per barrel milestone and the central bank kept interest rates unchanged for a sixth meeting.

The world’s best-performing currency this year strengthened 1.1 percent to 64.0390 at 2:10 p.m. in Moscow after the Bank of Russia’s decision, which was in line with expectations. Government bonds rallied as policy makers said they may resume cutting the key rate at one of their next meetings and Brent crude climbed for a fourth day. The equity benchmark was set for the biggest monthly advance since February 2015.

Economists see central bank chief Elvira Nabiullina reducing the benchmark rate by 150 basis points in the second half of the year, from 11 percent. Inflation will ease to 5 percent in April next year and reach the central bank’s target of 4 percent in late 2017, rate-setters said in a statement.

"The central bank is behind the curve," Dmitry Postolenko, manager of bond portfolios at Kapital Asset Management in Moscow, said by e-mail. "With oil like this, the rally will continue."

The yield on 10-year sovereign bonds declined 15 basis points to 8.95 percent, the lowest level since July 2014, when the U.S. and European Union first introduced sanctions blocking some of the country’s biggest companies from overseas debt markets. Russian government bonds are the second-best performer among local currency debt this year, having brought investors a 17.3 percent return in dollar terms.

Buying Russia

The Micex Index declined 0.2 percent to 1,965, set for an April rally of 5 percent. Brent crude advanced to $48.33, heading for a 22 percent monthly increase, the best since May 2009.

"Markets are pricing in a higher likelihood of rate cuts,” Yann Quelenn, a market strategist at Swissquote Bank SA in Gland, Switzerland, said by e-mail. “Inflation is rapidly declining and the oil price is moving up. There’s a dearth of high-yielding assets in the world today. So investors snap up Russia."