Ruble Trailing Crude’s Gains Puts 2016 Fiscal Target in Sight

  • Brent oil in rubles crosses the 3,165 budget threshold
  • Russian finance ministry ‘avoiding the worst’: Miklashevsky

The ruble trailed a bounce in crude oil prices, helping bring a key budget metric closer to the Russian government’s target.

While the currency advanced 1.2 percent against the dollar to 64.7010 by 4:54 p.m in Moscow, the most in emerging markets after Poland, it lagged the 3.2 percent surge in Brent crude, which is used to price the nation’s main Urals export oil blend. That pushed the price of Brent in rubles to 3,194, the highest this year and almost 30 rubles above of the average the Finance Ministry uses to estimate its 2016 fiscal goals.

To help the government to close the widest deficit since 2010, the ruble needs to underperform the rally in oil. With about a third of budget revenue coming from oil and natural gas exports, a weaker currency helps Russia meet its budget target because more rubles are collected from each barrel of oil sold abroad. A ruble that’s too strong curtails revenue from energy sales in local-currency terms.

“The ruble is strengthening only moderately in the wake of oil” and export earnings can rise, said Vladimir Miklashevsky, a strategist at Danske Bank A/S. “Both the central bank and the finance ministry should be happy."

So far the average price this year is 2,824 rubles per barrel, still short of the fiscal target. At the same time, the improvement in the price of Russia’s main export earner suggests it may avoid burdening Russians with additional austerity as they survive a second year of recession, according to Miklashevsky.

"At this price Russia is still not avoiding the fiscal deficit, but it’s avoiding the worst,” he said.

Government bonds in rubles traded little changed with the yield on five-year debt staying at 9.03 percent. The benchmark Micex stock index increased 1.2 percent to 1,929.

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