Ruble Rises for Fifth Day Versus Basket as Borrowing Costs Fall

By Emma O'Brien

Sept. 23 (Bloomberg) -- Russia's ruble rose for a fifth day against the dollar, its longest streak of gains in almost 11 months, as declining local interest rates made it easier for companies to borrow money to invest.

The rate of interest Russian banks charge to lend money to each other dropped 24 percent today after lenders borrowed $13 billion in emergency funding yesterday and the government pledged more than $100 billion to help stabilize interest rates and the slumping stock market last week. Investors have withdrawn about $24 billion from Russia since the beginning of September, according to BNP Paribas SA.

``With local rates declining quite rapidly there's less tension in the money markets and that means less outflows,'' said Shahin Vallee, an emerging-markets currency strategist in London for BNP, France's largest bank. ``The ruble is rallying as the situation normalizes and people get more comfortable.''

The ruble rose to as high as 24.9421 to the dollar, its strongest level since Sept. 3, and was at 24.0093 by 4:22 p.m. in Moscow, from 25.0281 late yesterday. It also strengthened to 36.8720 per euro, from 36.9793 yesterday.

Those movements pushed Russia's currency 0.2 percent higher against the dollar-euro basket used by the central bank to limit the currency's fluctuations. The ruble was at 30.3475 to the basket, from 30.4062 yesterday, the level regarded as the weakest end of the ruble's trading band, Vallee said.

Bank Rossii contains the ruble within the trading corridor so as to protect the competitiveness of Russian exporters. The basket rate is calculated by multiplying the ruble's rate to the dollar by 0.55, the euro rate by 0.45, then adding them together.

Rescue Package

Interbank rates in Russia slid to 5.67 percent today, from 7.42 yesterday. They rose to 11.1 percent on Sept. 17, the highest since August 2004, as Russia's Micex and RTS stock markets halted trading amid a collapse in prices. The ruble has lost 3.5 percent to the basket since the beginning of August as Russia's war with neighboring Georgia and turmoil in global credit markets spurred investors to exit holdings.

The government rescue package is soothing investors and sparking a return to the ruble, Vallee said.

Worries about the U.S. economy and the fate of the dollar are also prompting Russian investors to convert funds from U.S. currency into rubles, said Mikhail Galkin, director of fixed- income and credit research at MDM Bank in Moscow.

``People are trying to get rid of dollars because of the weakness,'' he said. ``That's supporting ruble strength at the moment.''

Bonds Mixed

The U.S. Treasury is proposing a $700 billion rescue plan to stabilize the financial system after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. bought Merrill Lynch & Co.

Russian government bonds were mixed, with the yield on the benchmark 30-year note rising 23 basis points to 6.99 percent, the highest since Sept. 18. The two-year note yielded 6.23 percent, down 11 points. The difference in yield between Russian and U.S. two-year debt narrowed to 415 basis points, after widening to 469 points on Sept. 16.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net