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Ruble Seen Extending Drop After Worst Week in Emerging Mark ets

Bloomberg

Bloomberg

By Ksenia Galouchko

(Bloomberg) — The ruble headed for a weekly decline as GL Financial and Raiffeisen Asset Management said the exchange rate may have further to fall as the low price of oil and sanctions against the country persist.

The currency fell 0.6 percent against the dollar to 67.8940 by 4:50 p.m. in Moscow, taking its decline this week to 2.7 percent. The price of Brent, the benchmark for Russia’s main export blend, touched a six-year low this week as representatives from OPEC oil-producing nations weren’t expected to agree Friday on ways to boost the price of the commodity.

Russia, which derives almost 50 percent of its budget revenue from oil and natural-gas exports, is pumping crude at near-record levels as it weathers its first recession since 2009 exacerbated by sanctions over the country’s role in the conflict in Ukraine. The price of crude in rubles sank to its lowest since 2011 last month and is trading 10 percent below its average for the past 12 months.

“The ruble is too expensive and could easily fall to 70,»

Sergey Vakhrameev, a money manager at GL Financial, which oversees about $100 million in assets, said by phone from Zurich. “We saw a significant drop in the price of oil this week which weighed on the ruble and I don’t expect the OPEC meeting to result in major output cuts.”

Vladimir Vedeneev, chief investment officer of Raiffeisen Asset Management in Moscow, also regards the ruble as overvalued and said a level of 70 would be «comfortable» for the budget relative to the current oil price. The ruble hasn’t kept up with the drop in oil this quarter, an imbalance that translates into reduced government revenue from the nation’s top export earner in local-currency terms.

Brent crude traded 1.9 percent higher on Friday at $44.65 a barrel after closing at $42.49 earlier in the week as members of OPEC met in Vienna.

Iran’s plans to raise oil production by as much as 1 million barrels a day following the lifting of sanctions is “not a matter of negotiation,” Oil Minister Bijan Namdar Zanganeh said on Friday. Saudi Arabia held the line against cuts at informal discussions on Thursday, insisting big non-member producers such as Russia would have to agree to cooperate first, according to a person with knowledge of the talks. Russia doesn’t plan to cut output to boost prices, Energy Minister Alexander Novak said on Thursday.

Bonds Advance

Five-year generic government bonds climbed, cutting the yield four basis points to 10.02 percent after Russia’s credit- rating outlook was raised to stable from negative by Moody’s Investors Service. The ratings agency on Thursday cited a stabilization of external finances and a diminished likelihood of the economy facing a further “intense shock” in the next 12 to 18 months after being sanctioned over Ukraine.

Russia’s five-year credit default swaps climbed 1.26 basis points to 278.752 basis points, the highest level since Nov. 16.

“I don’t think investment grade is imminent — many of the negative factors hitting Russia are still there — low commodities prices and sanctions in particular,” said Viktor Szabo, who helps oversee $12 billion of developing-nation debt as a money manager at Aberdeen Asset Management Plc in London.

“And although the core balances look healthy, Russia lacks a sustainable growth model.»

The benchmark stock Micex Index dropped 1.3 percent to 1,763.63, set for a 1.8 percent decline in the week. Oil producers Lukoil PJSC and Rosneft OJSC fell 2.7 percent and 1.2 percent, respectively.

 

04.12.2015 / Bloomberg