Ruble Climbs Most for Three Weeks on Demand From Exporters

February 1, 2011



The ruble surged the most in three weeks against the dollar as companies bought the local currency to cover their expenses for the year and protect against swings in the exchange rate.

Russia’s currency jumped 0.5 percent, the most since Jan. 13, to 29.6150 per dollar, and was 0.3 percent stronger at 40.71 per euro by the 5 p.m. close of trading in Moscow. Those movements pushed the ruble 0.4 percent higher to 34.6077 against the target dollar-euro basket used by the nation’s central bank to limit fluctuations that damage exporter competitiveness.

“February to March are seasonally the strongest months for the ruble as exports are high” and companies use the proceeds to cover future costs including wages and taxes, Alexei Moiseev, chief economist in Moscow at VTB Capital said in e-mail.

The ruble climbed 5.8 percent against the basket in the first three months of last year, the biggest quarterly advance since the basket was established in 2005. It has gained 1.5 percent to the basket so far this year, and 3.1 percent against the dollar, data compiled by Bloomberg show.

Investors pared bets today that the ruble will weaken, with non-deliverable forwards showing the currency at 29.8231 versus the dollar in three months, from 30.0278 yesterday. NDFs allow companies to protect against currency fluctuations.

Companies “budget how many rubles they will need to pay local expenditures and hedge this amount worth of export earnings in order not to carry currency risk throughout the year,” said Moiseev at VTB, the investment banking arm of Russia’s second-largest lender. The subsequent advance in the ruble is known as “the February effect,” he added.

Rate Outlook

Expectations the central bank will raise its key interest rates before the end of the first quarter are also supporting the ruble, Commerzbank AG currency analysts led by chief strategist Ulrich Leuchtmann wrote in an e-mail to clients today.

Bank Rossii unexpectedly left all its benchmark rates on hold at record-lows at a Dec. 31 review, even as economists surveyed by Bloomberg predicted a 0.25 percentage point increase to the deposit rate. With inflation at a one-year high in December, traders are still pricing in 0.88 percentage points, or 88 basis points, of rate rises in the next three months, forward rate agreements show.

“Against the background of strong acceleration in inflation, the rate outlook is likely to remain positive for the ruble,” the Commerzbank e-mail said.

Carry Trade

Higher rates make the ruble a more attractive target for the carry trade, where funds are borrowed at lower rates in countries like the U.S. and Japan, where target borrowing costs are near zero, and invested in places like Russia, Brazil and South Africa, which yield comparatively more. Brazil’s Selic target rate is 11.25 percent and South Africa’s benchmark rate is 5.5 percent.

Ruble-denominated government debt due 2016 rose for a second day, pushing the yield down 3 basis points to 7.62 percent. The yield on sovereign dollar bonds maturing in 2020 dropped 10 basis points to 5.08 percent. Dollar debt due 2015 also rose, with the yield down 15 basis points to 3.589 percent, a one-week low.