Ruble Weakens Against Basket as Oil, Equities, Bonds Decline

By Emma O'Brien

Nov. 17 (Bloomberg) -- The ruble weakened against the central bank's dollar-euro basket as oil, Russia's biggest export earner, declined and stocks dropped for a fourth day.

The currency fell against the euro and pared gains against the dollar as Urals crude, the nation's export oil blend, slid for a second day to $48.32 a barrel, an almost two-year low. Russia's Micex index of 30 stocks lost 3.8 percent, while the dollar-denominated RTS index lost 3.2 percent.

``I expect further downward movement in the ruble,'' said Evgeniy Nadorshin, a senior economist in Moscow at Trust Investment Bank. ``Russia and emerging-market Europe are in a difficult position right now.''

Against the euro, the currency slipped 0.5 percent to 34.6857 by 2:25 p.m. in Moscow, from 34.5028 on Nov. 14. The ruble swung between gains and losses versus the dollar, recently trading 0.1 percent lower at 27.3980.

Bank Rossii, Russia's central bank, sold foreign-currency reserves to prevent the ruble from weakening against the basket. The basket is made up of about 55 percent dollars and 45 percent euros and is used to limit the effect of ruble swings on the competitiveness of Russian exports.

The currency weakened 0.4 percent to 30.6878 against the basket, after earlier falling as much as 0.5 percent to 30.7235, the weakest end of the basket's trading band, which policy makers expanded by 1 percent last week. Bank Rossii sold $15 billion of reserves in the week to Nov. 14 to arrest the ruble's decline, Nadorshin said.

Ruble Forecasts

The central bank expanded the trading band Nov. 11 as banks including Citigroup Inc., Goldman Sachs Group Inc. and Troika Dialog, Russia's oldest investment bank, said policy makers would have to let the ruble fall as the declining price of oil erodes the $91.2 billion current-account surplus.

``The weakening oil price is the main drag on sentiment,'' Chris Weafer, chief strategist in Moscow at UralSib Financial Corp., wrote in an e-mail to clients today.

Goldman is predicting a drop of as much as 18 percent against the basket over the next year.

Should ``the situation with the current-account balance change fundamentally and the oil price drop becomes a long-term factor, then some additional lowering of the ruble rate is possible,'' Arkady Dvorkovich, President Dmitry Medvedev's economic adviser, said at a meeting of the Group of 20 nations in Washington. ``But there will be no sharp, one-time devaluation or sharp fluctuations on the currency market. We will not let this happen.''

Tax Payments

The ruble will probably strengthen against the dollar this week as banks seek to make about 100 billion rubles (3.7 billion) in excise and social tax payments and to repay loans of as much as 800 billion rubles to the government, said Mikhail Galkin, head of fixed-income research at MDM Bank in Moscow.

``There will be a shortage of rubles,'' he said, adding the taxation payments due today had helped the currency rise earlier as much as 0.4 percent against the dollar. The average interest rate Russian banks charge to lend money to each other overnight, or MosPrime rate, surged to a record 22.67 percent today.

Russia's 7.5 percent bond due 2030 dropped, pushing the yield 3 basis points higher to 10.60 percent. The 8.25 percent note maturing 2010 yielded 6.39 percent, up 15 points. Bond yields move inversely to their prices. The Micex index of Russian corporate debt rose 0.2 percent.

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