Russian Ruble Holds Near Lowest End of Basket's Trading Band

By Emma O'Brien

Sept. 12 (Bloomberg) -- The Russian ruble was little changed at the lower end of the trading range against the central bank's dollar-euro basket, as oil dropped for a second week.

The currency was headed for a third weekly decline against the dollar as crude prices extended losses from a record high in July and stocks dropped 7 percent in the past five days.

``Russia is a lot weaker than it was two or three months ago with the loss of equity money and commodity prices declining,'' said Paul McNamara, who helps manage $2.5 billion of emerging-market assets in London at Augustus Asset Managers Ltd., which sold its Russian assets when the war began. ``Why should the ruble recover in this sort of environment?''

The currency was at 30.3940 versus the basket by 3:21 p.m. in Moscow, from 30.3724 yesterday. It is little changed from the end of last week, when Bank Rossii sold about $5 billion to halt the ruble's drop, according to Moscow-based Trust Investment Bank. The central bank sold ``several billion'' dollars in September to support the ruble, First Deputy Chairman Alexei Ulyukayev said yesterday.

Bank Rossii keeps the currency within a trading band against the basket to limit the impact of its fluctuations on the competitiveness of Russian exports. After last week's 1.8 percent drop, the trading range is now about 29.20 to 30.40 rubles, according to Trust and Credit Suisse Group. The basket rate is calculated by multiplying the rate to the dollar by 0.55, the euro rate by 0.45, then adding the two together.

Making Offers

The ruble was at 25.6603 per dollar, from 25.7442 yesterday, headed for a 0.7 percent drop in the week. It traded at 36.1795 per euro, from 36.0289, up 0.4 percent since Sept. 5, snapping two weeks of declines.

Crude oil slipped 4 percent on the week, 30 percent down from a record $147.27 a barrel on July 11. Russia's benchmark Micex index lost 7.8 percent in the past five days as hedge funds and local investors faced demands for more capital from their brokers, causing further selling, said Sebastien de Prinsac, head of international sales at Trust in Moscow.

Investor sentiment toward Russia is declining amid concern economic growth may falter, Credit Suisse equities analysts led by Hugo Swann in London wrote in a research note today. The economy grew 7.5 percent in the second quarter, slower than the 8.5 percent in the first three months of the year.

ING Bank NV recommended investor reinstate so-called long positions on the ruble, or bets it will strengthen. The ruble is unlikely to weaken below 30.40, said Stanislav Ponomarenko, ING's chief economist in Moscow.

`Amplify Concerns'

``Further ruble weakening could amplify concerns of individuals and investors regarding its standing as a currency,'' he wrote in a client note today. ``The ruble's trend toward the stronger side of the band depends on the recovery of capital inflows.''

Russian government bonds fell today, with the yield on the benchmark 30-year note rising for a fourth day, by 3 basis points to 6 percent, a more-than one-year high. The two-year note yielded 6.17 percent, also up 3 points. The difference in yield between Russian and U.S. two-year debt widened to 396 basis points, the most since March.

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