The ruble strengthened as accelerating inflation led investors to speculate the Bank of Russia will leave rates unchanged Friday and halt an easing cycle that could lop off as much as 3 percentage points from key rates by 2016.
Ruble investors stung by the biggest loss in emerging market currencies last week will welcome a pause in easing even while the price of oil overshadows central bank policy, said Piotr Matys, a London-based emerging markets foreign-exchange strategist at Rabobank.
Russia’s currency rose for the first day in five, up 0.2 percent against the dollar to 68.2710 at 1:02 p.m. in Moscow after losing 5.8 percent in the past week, the biggest decline among 24 developing-nation currencies tracked by Bloomberg.
Price drop didn't materialize in August after ruble weakened
“Keeping rates unchanged will help the ruble, but it will not provide enough insulation if oil prices start falling again,” Matys, among economists predicting the Bank of Russia will avoid a rate cut when it meets Sept. 11. “I expect the Bank of Russia to pause its monetary policy easing cycle on Friday mainly due to the weaker ruble, which already slowed down the pace of inflation deceleration.”
The Bank of Russia will leave its key rate unchanged at 11 percent at the Friday meeting, according to 25 of 27 economists surveyed by Bloomberg. Annual inflation in August unexpectedly accelerated to 15.8 percent from 15.6 percent in July, with prices rising 0.4 percent in the month, data showed on Friday.
Most Bearish
The economy of the world’s biggest energy exporter plunged into recession this year after a 50 percent decline in crude prices in the past year. A measure of the ruble’s outlook against the dollar in the options markets over the next month is minus 4.01 percent, the most bearish in emerging markets after the Argentine peso.
The Bank of Russia abandoned a commitment to continue lowering borrowing costs after this year’s smallest reduction consumer prices in July. After looking to offer relief to the economy by cutting the benchmark a cumulative six percentage points to 11 percent, the Bank of Russia may be shifting the focus to the ruble and inflation, which remains almost fourfold its mid-term target.
Still, oil prices will continue to dictate the direction of the ruble, limiting any boost offered by a less dovish Bank of Russia, said Sebastien Barbe, the head of emerging-market research and strategy at Credit Agricole CIB.
“It remains absolutely key for the the ruble,” Barbe said by e-mail. “If oil prices fall again, than even with the rate support, the ruble would likely depreciate further.”
Brent crude fell 1.3 percent to $48.99 a barrel, the second day of declines. The Micex stock index added 0.5 percent, after losing 1.2 percent last week.
source:Bloomberg
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