Ruble May Gain 1% By Year-End on Rescue Package, Survey Shows

By Emma O'Brien

Oct. 6 (Bloomberg) -- The ruble will strengthen almost 1 percent by the end of the year as Russia's support package for markets boosts liquidity, according to a Bloomberg survey.

The currency will rise to 30.15 against the central bank's dollar-euro basket by the end of 2008 and 30.30 by Oct. 31, according to the median estimate of 12 strategists and analysts surveyed last week. Since September, the government has pledged $150 billion in loans, tax cuts, delayed tax payments and other measures to support banks and companies amid the fallout from the global credit crisis.

``Russia has the resources and the commitment to make these measures work,'' said Jon Harrison, an emerging-markets currency strategist in London at Dresdner Kleinwort who predicts the ruble will rise to 30.20 by year-end. ``The capital outflows we've been seeing should abate and I see a modest recovery in the ruble.''

The ruble was little changed at 30.4013 against the basket by 2:18 p.m. in Moscow, close to the 30.40 level analysts at banks including UniCredit SpA, Credit Suisse Group, ING Bank NV and BNP Paribas SA. say is the weaker end of the central bank's trading band.

Bank Rossii keeps the ruble within the band by buying and selling currency, to limit fluctuations that hurt the competitiveness of Russian exports. 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.

Dollar Sales

The ruble slumped 11 percent against the dollar since the beginning of August as investors withdrew almost $60 billion from the country, according to BNP Paribas. The government estimated $16.7 billion left the country in the third quarter, the second-highest amount in Russia's history. The outflows came as the country's five-day war with Georgia in August intensified concerns already ignited by the falling oil price and seizure of global debt markets.

The central bank sold as much as $4.8 billion to prevent the ruble from sliding below 30.40 last week, according to Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow. Bank Rossii has no plans to expand the trading band ``over the coming months'' and sold ``several billion'' dollars to prop the ruble up in early September, First Deputy Chairman Alexei Ulyukayev said at the time.

Speculation that Bank Rossii will continue to make use of Russia's $562.8 billion in foreign currency reserves to support the ruble will also protect it, says Stanislav Ponomarenko, chief economist in Moscow at ING Bank NV.

Russia has the world's third-largest international reserves, after China and Japan. They have dropped almost 6 percent since the beginning of August as the ruble plunged 3.6 percent against the basket.

Long Positions

``The ruble hasn't weakened from 30.40 over the past three weeks, which shows the central bank is committed to keeping it stable,'' Ponomarenko said. ``Their position is firm and that should give confidence to people to invest.''

ING forecasts the ruble will be at 29.20, near the strongest end of its trading band, by the end of the year, and is advising clients to resume so-called long positions on the ruble, or bets that it's going to strengthen.

``The only reason why the ruble isn't getting stronger is there are still concerns about Russia and the credit situation,'' Ponomarenko added. ``These fears have no fundamental support.''

The ruble fell for a eighth day against the dollar today, dropping as much as 0.9 percent to 26.2145, the weakest since March 2007. It lost almost 6 percent versus the dollar this year. The currency rose as much as 1.1 percent to 35.3771 per euro today, up 1.1 percent for the year.

The range for the year-end ruble forecasts was 29.20 to 30.50. For the end of the month, the range was 29.80 to 30.40.

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