Ruble Caps Best Streak in Year as Oil Eclipses Rate-Cut Bets

  • Finance Ministry says Russia doesn’t need a stronger currency
  • Derivatives traders betting on deepest cuts since March 23

The ruble rallied for a fifth day as oil trading above $52 per barrel eclipsed wagers that the central bank will resume interest-rate cuts this week.

Russia’s currency strengthened 1.4 percent to 63.73 per dollar by 6:47 p.m. in Moscow, the biggest jump after Brazil’s real among emerging-market peers and the longest stretch of gains since April 2015. The government’s 10-year bonds advanced, reducing the yield five basis points to 8.65 percent, the lowest since July 2014. The government sold all the bonds tendered in its two auctions Wednesday, with investor demand more than double the amount offered.

Brent crude’s 5.3 percent jump this week and receding wagers for a Federal Reserve rate hike have boosted the allure of higher-yielding assets in the world’s biggest energy exporter. The ruble’s 16 percent appreciation this year, the most after Brazil among 24 developing nations, is paving the way for central bank Governor Elvira Nabiullina to resume a rate-cutting cycle she put on hold in September. The next decision is on Friday.

“The ruble may extend its already impressive year-to-date gains as the Fed is unlikely to raise rates this summer and oil prices also provide the ruble with support,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. The currency could temporarily come under pressure on Friday should policy makers reduce borrowing costs, he said.

Rate Cut?

Economists surveyed by Bloomberg are evenly split on Friday’s rate decision, with 21 of 42 polled seeing no change to the benchmark at 11 percent and the same number predicting a 50 basis-point cut. Derivatives traders are betting on 65 basis points of policy easing in the next three months, the most since March, forward-rate agreements show.

Finance Minister Anton Siluanov warned that the country doesn’t need a stronger exchange rate, which has the potential to hurt companies’ competitiveness and diminish budget revenue from exports.

“We aren’t interested in a strengthening” and the government wants to avoid “sharp” gains, he said.

The big question, according to Matys, is whether Nabiullina will listen to Siluanov.

“At least it would send a signal that the central bank is ready to act to prevent the ruble from appreciating excessively at a time when export is the only pillar of growth," Rabobank’s Matys said.

The Micex Index of equities was little changed at 1,951.55, leaving it up 3.4 percent this week. The Finance Ministry sold all 17.4 billion rubles ($272 million) of September 2031 fixed-coupon local-currency bonds, known as OFZs, and all 10 billion rubles in August 2021 notes.

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