The ruble hit 14-month highs versus a euro-dollar basket on Wednesday, its rally only slightly tempered by Central Bank interventions, and analysts said tax payments next week would just add momentum.
Speculation is rising that continued ruble gains could prompt a bigger response from the Central Bank, like more interventions, larger interest rate cuts or a rise in banks' reserve requirements.
The Central Bank has so far stuck by its policy of shifting the ruble's floating trading band by 5 kopeks for each $700 million of interventions in a bid to slow down excessive currency moves without stifling market trends altogether.
On Wednesday, the ruble firmed as far as 34.45 against the basket, with dealers saying the Central Bank had likely shifted the floating trading band to 34.45 to 37.45 from 34.50 to 37.50 — its 11th such move in three weeks.
In addition, the Central Bank has been buying smaller amounts in so-called "planned" interventions within the band's boundary, estimated by dealers at about $200 million to $300 million a day.
The ruble firmed to seven-week highs of 29.65 per dollar and hit 40.31 per euro, its strongest since December 2008.
"We expect the ruble to … rally toward 34.25 this week, provided that oil prices remain strong," Gintaras Shlizhyus, an analyst at Raiffeisen, said in a research note.
"Euro zone troubles are still casting a shadow over the euro market, which should lend additional support to ruble bulls."
Oil prices are up 10 percent in the past month, while Russia — with interest rates of 8.50 percent — still offers attractive yields to increasingly risk-hungry investors.
VTB Capital and ING said that if appreciation pressure on the ruble persists, the Central Bank could slash rates by 50 basis points this month, after a 25 basis point easing in February.
Such appreciation pressure could only intensify later this month, as end-month and end-quarter tax payments in Russia start from next week. This prompts exporters to change their foreign currency earnings into rubles, and other market players may also be encouraged to ditch dollars and euros in anticipation.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.