Ruble Set for Best Week Since 1998 as Russians Convert Dollars - Bloomberg Business

The ruble climbed, capping its biggest weekly gain in almost 17 years, as Russians moved their dollar savings into the local currency to take advantage of the world’s biggest appreciation.

The ruble increased 1.3 percent to 51.20 by 2:18 p.m. in Moscow, taking its advance for the week to 11 percent, the most among currencies tracked by Bloomberg globally. Government bonds known as OFZs rose, pushing five-year yields down 31 basis points to 11.23 percent, the lowest since Dec. 2, as the ruble’s rally spurred bets the central bank will take steps to stem the jump.

After rushing to buy dollars as the ruble lost almost half its value last year, Russian households have sold three times the amount of foreign currency this month as they did in all of March, according to Sberbank CIB’s estimates. The nation’s assets were also bolstered by oil, Russia’s main export earner, which surged 3.3 percent this week.

“Factors including the oil’s stabilization and the population’s conversion of foreign currencies into rubles has created conditions for the ruble rally,” Maxim Korovin, an analyst at VTB Capital in Moscow, said by phone. “The ruble’s strengthening has been heating up the appetite for OFZs and giving the regulator more scope for easing of the monetary policy.”

Forward-rate agreements show traders are betting on a 1.70 percentage-point reduction in benchmark borrowing costs in the next three months, 20 basis points more than at the start of April. The central bank has lowered its key rate twice this year to 14 percent.

Currency Overbought

Policy makers are already taking steps to damp demand for rubles. The currency pared gains on Friday after the Bank of Russia announced it will increase its minimum interest rate on foreign-currency repurchase agreements.

The ruble’s relative-strength index climbed to 82 on Friday, above the threshold of 70 that signals to some analysts that an asset has overshot.

While easing inflationary pressures, the rising ruble hurts Russia’s budget by reducing the local-currency value of dollar-denominated energy export revenue. Converted into rubles, the price of Brent is at 2,865, the lowest level since January 2011.

This poses a risk for the country in a year when analysts are projecting a fiscal shortfall of 2.3 percent of gross domestic product, the biggest since 2010.

Exporters Selling

The scope for further appreciation remains as exporters convert foreign-currency revenues early to prepare for the next tax period, betting the ruble will only get stronger if they wait, according to Sberbank CIB’s Iskander Abdullaev.

The weekly appreciation against the dollar was the largest since a temporary rebound in October 1998 following a government default that triggered a 71 percent depreciation for the year. Russia’s dollar-denominated RTS stock index rose 1 percent to 1,013.14 on Friday, the highest level since November and the fifth day of gains.

Capital outflows slowed to $32.6 billion in the first three months of the year, less than half the amount in the previous three months, according to initial central bank estimates.

“The oil price has stopped falling and is behaving better now, the geopolitical noise has subsided, financial stress in the local market has been reduced dramatically and at the margin, macro conditions are showing some modest signs of improvement,” Benoit Anne, the head of emerging-market strategy at Societe Generale SA in London, said by e-mail. “You put all these in a blender and you end up with a good ruble cocktail.”

http://www.bloomberg.com/news/articles/2015-04-10/ruble-set-for-best-week-since-1998-as-russians-convert-dollars