The ruble firmed further on Wednesday, prompting the Central Bank to buy between $1.5 billion and $2 billion to moderate the currency’s appreciation, dealers said, as economists begin to worry that the rally is becoming a bubble.
The ruble closed at 36.03 against the euro-dollar basket that the Central Bank uses to guide its foreign exchange policy, suggesting that the regulator shifted the level of interventions at which it buys foreign currency several times during the day, dealers said. On Tuesday, the ruble closed at 36.17.
The Central Bank has administered a series of such moves over the past couple of weeks, widening the interventions corridor for each $700 million in purchases.
The ruble firmed to 29.77 against the dollar from Tuesday’s close at 29.83 as the U.S. currency remains on the defensive globally, with market players increasingly willing to take greater risks on currencies that promise greater returns.
In addition to the weak dollar, relatively high oil prices support the ruble’s rise, if only for now, economists said.
Crude prices — a major indicator of Russia’s overall economic well-being — traded at about $70 a barrel Wednesday.
“We see some kind of a bubble,” said Vladimir Osakovsky, head of research strategy at UniCredit Bank. “If the optimism in global recovery fades and oil prices fall, there might be a sharp reversal of the rally.”
With crude prices rising to relatively high levels in recent months and emerging markets leading the global economic recovery, investors’ willingness to take on higher risks for higher returns has increased significantly.
The Central Bank’s benchmark refinancing rate at an annual 10 percent offers lucrative carry trade returns compared with 1 percent or less in other Group of Eight economies.
“Compared with other emerging markets, Russia still has a large class of assets for sale,” said Viktor Kholoshnoi, a dealer with Gazprombank. “This is not stable. It’s not likely that the ruble’s appreciation is long-term.”
The Central Bank is meandering between two objectives: a wish to move to a more flexible exchange regime in the coming years and the pressure to keep the currency from strengthening too much, UniCredit’s Osakovsky said.
A strong ruble works to the disadvantage of local producers, who cannot compete with cheaper imports.
Alexander Murychev, deputy head of the Russian Union of Industrialists and Entrepreneurs, said Wednesday that he believes the ruble’s rate will stabilize in the next few days.
“I’m not worried,” Murychev said. “I see this as a temporary trend brought on by the weakening. I don’t believe there will be much volatility in the ruble’s rate.” He added that the ruble should oscillate near 30.00 per dollar for the time being.
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