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. Last Updated: 07/27/2016

Oil, Central Bank Help Ruble Recover

APA couple passing an exchange-rate board Monday in Moscow. The ruble fell below 39 against a dollar/euro basket.

The ruble rebounded on Central Bank interventions and a brief spike in the oil price Monday after dipping below the 39 mark versus a dollar/euro basket for the first time since March.
The ruble weakened as far as 39.03 versus the dollar/euro basket the Central Bank uses for policy guidance in the first minutes of trade, according to Reuters data. The ruble then strengthened to close at 38.63.
Dealers said the Central Bank was selling foreign currency at 38.90 and then at 38.95, with one estimating the sales at $1.5 billion. The ruble also followed the oil price higher, though trade closed before a retreat in crude.
“Exchange rate stability is still the government’s priority, in our view. But were oil prices to continue falling, the Central Bank might allow the ruble to weaken to 41 against the euro-dollar basket,” VTB Capital said in a research note.
The government also backed the key figures for the draft 2010 budget, which will be based on the average annual price of oil at $55 per barrel and sees next year’s economic growth at 1 percent.
Brent in London, which is closely linked to the price of Urals crude, traded at $60.10 per barrel, compared with $60.52 per barrel at Friday’s close. Energy producers make up 57 percent of the MICEX.
During the trading session, oil rose $1 per barrel to above $61, however, climbing as stock markets rallied and as some investors saw buying opportunities after prices fell sharply last week.
The Central Bank has set the ruble’s trading band at 26 to 41 versus the basket after a controlled devaluation in January, but it has left itself the right to intervene within the corridor to smooth out excessive market volatility.
The Central Bank said it would defend this corridor provided the oil price does not fall to $30 per barrel and stay there.
If oil prices fall further, Russia is unlikely to pay tens of billions of dollars again to defend the ruble as it did six months ago, since the widening budget deficit would put more fiscal pressure on Russia and a devaluation would bring welcome relief.
A brief spike in oil prices also nudged key share indexes, supported throughout the day by resilient energy shares, into positive territory on the back of oil companies, such as index heavyweight LUKoil, up 3.1 percent.
“Oil moves determine the direction of our stock market and, the ruble, too. Oil shares were oversold and that was enough to lift the MICEX Index,” East Commerce trader Pavel Koryshev said.
Surgutneftegaz, the country’s fourth-largest oil producer, rallied 4.5 percent, the most in a month. The 30-stock MICEX Index added 1.1 percent to 881.15, the most in eight days.
“Oil seems to have support at $60,” and that’s positive for Russian shares, said Naum Tanchuk, who works in international equity sales at Kapital Investment Group in Moscow.
LUKoil, the country’s largest independent crude producer, advanced 3.2 percent, while Novatek, Russia’s largest non-state gas producer, rose 2.4 percent. (Reuters, Bloomberg)