Russian central bank rides to the rescue of the ruble

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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"] Image courtesy Kuba: http://picasaweb.google.com/vampuka09/_180409#5326088854056207330 [/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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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