Azernews.Az

By Bloomberg

The ruble headed for its best month since at least 1993, spurring the central bank to cut interest rates for the third time this year to stem a rally that analysts said had gone too far.

The currency has advanced 13 percent against the dollar in April, the strongest performance among all peers tracked by Bloomberg. While the Bank of Russia surprised most economists with a 150 basis-point reduction to its key rate on Thursday, the ruble only briefly extended declines to 1.8 percent before trading 0.5 percent weaker at 51.2840 per dollar by 1:56 p.m. in Moscow. Government bonds extended their fourth month of gains.

The decision marks the latest attempt by policy makers to stem the appreciation, which risks undermining the nation’s earnings from oil exports as analysts project the worst fiscal shortfall since 2010. This year’s rally has left the currency “overvalued,” according to 17 out of 27 analysts polled by Bloomberg from April 24 to 29.

“While the ruble has strengthened too much, I think the central bank doesn’t want to make too drastic decisions to weaken it,” Alexey Tretyakov, money manager at Aricapital Asset Management in Moscow, said by e-mail. “The ruble can weaken during summer months by itself, just under the influence of seasonal factors, like dividend payments and a lower current- account surplus.”

In addition to today’s move, the Bank of Russia has in the past month made it more expensive of lenders to borrow dollars through its repurchase-agreement facility. Policy makers raised the rate on foreign-currency repos three times after banks used the funds to invest in higher-yielding Russian debt.

Carry Trade

Carry traders, who borrow where rates are low to invest in assets of countries where yields are higher, earned 25 percent by betting on the ruble this year, the most in the world, according to data compiled by Bloomberg. They gained as oil climbed from a six-year low in January and a cease-fire in Ukraine eased the chances of tougher sanctions on the world’s biggest energy exporter.

Russia has lowered its key interest rate by 400 basis points this year after hoisting it to an 11-year high of 17 percent in December to prevent the ruble’s plunge from stoking inflation beyond 13-year highs.

The yield on five-year government bonds fell 20 basis points to 11.18 percent on Thursday, bringing this year’s drop to 423 basis points. The Micex Index gained 0.8 percent.

Rally Potential

The Bank of Russia lowered benchmark borrowing costs by 150 basis points to 12.5 percent, 50 basis points more than the median estimate in a Bloomberg survey of 40 economists. Ten accurately predicted the size of the reduction, while five forecast a cut to 12 percent.

The currency will keep trading from 50 to 55 per dollar if oil prices remain at $60-65 a barrel, according to Luis Saenz, the head of equity sales and trading in London for Moscow-based BCS Financial Group. Brent crude climbed 0.4 percent to $66.10 a barrel on Thursday, taking its monthly advance to 20 percent.

“Considering the weak dollar, the stronger oil price and some signs of life in the commodity space, we would not rule out another modest leg to this Russian rally,” Saenz said by e- mail.