Intervention by the Central Bank of Russia (CBR) reversed the
slide in the ruble's value against the dollar last week, after the
currency lost 12% of its value in May.
[caption id="attachment_63106" align="alignright" width="300"
caption="The Russian Central Bank in Moscow"]
[/caption]
That result is positive for investors in Russian shares and ETFs
like the Market Vectors Russia ETF (
RSX
,
quote
), though the key indicator for Russian equities continues to be
oil prices.
The ruble (
FXRU
,
quote
) hit a
low of .0297 against the dollar on June 2
, pushed by weakening oil (
BNO
,
quote
) and capital outflows from Russia of $5.8 billion during the month
of May that hit $5.8 billion.
The world currency basket that the CBR uses to benchmark the
ruble rose to 37.60, near the top of the bank's target range
between 32.15-38.15.
But drawing on its vast currency reserves, the CBR sold $600
million in three days last week, creating extra demand for rubles
and stabilizing the currency for the moment. Central bank chairman
Sergei Ignatyev let markets know he has plenty more firepower,
saying the CBR is willing to sell up to $700 million a day to
defend its currency band. The ruble closed Friday at .0307 to the
dollar, a 2.4% rebound from the week-earlier low.
The CBR said it is expecting a return to April's exchange rate
of .0338, though that may be optimistic without a pick-up in oil
prices. Brent crude oil ticked up about 1% last week after shedding
15% during May, but economists see no big rebound so long as the
world economic outlook remains lackluster.
The Russian public also seems to be offering a vote of
confidence in its native currency. A research report from
Moscow-based investment bank Renaissance Capital shows that
compared to previous depreciations in the ruble, depositors have
been less likely to rush to the bank and swap rubles into dollars.
This calm attitude is a signal that the current ruble weakness
should be containable and reversible.
Russian exporters, who make up the large majority of stock
market capitalization, can benefit from a weaker ruble, as they
earn revenue in hard currency but pay many of their costs in local
coin. This shows in the share graph of oil giant Rosneft (
RNFTF
,
quote
) for instance, which displays some inverse relationship to ruble
strength.
But this is a tenuous link compared to the whole Russian markets
iron-bound correlation with oil prices.
The ruble per se is actually one of the better-performing
emerging market currencies over the past year, doing better - or at
least less badly - than the Indian rupee or Brazilian real. The
Russian government and central bank seem to have learned to control
the currency's volatility, which means that at least the current
oil-driven dip in the market could be less severe than past
declines.
