The ruble hit a 15-month high against a dollar/euro basket on Monday, with high oil prices expected to fuel further gains before the end of the week and boost the case for more cuts in interest rate.
The ruble firmed as far as 33.75, its highest level since late 2008 after the Central Bank shifted the ruble's floating trading band for the 25th time since mid-February, dealers said. It trimmed gains to close at 33.77, up 7 kopeks on the day.
The new corridor against the basket is estimated at 33.75 to 36.75, compared with 33.80 to 36.80 previously. The Central Bank buys about $700 million in interventions at the band's boundary before shifting it by 5 kopeks, dealers say.
"This morning the Central Bank took one more step," a dealer at a large bank said. "The ruble is firming quietly."
Markets shrugged off news that a suicide bomber killed at least two policemen in the Ingushetia region on Monday, exactly a week after blasts in the Moscow metro killed at least 40, but analysts at VTB Capital urged caution.
"We advise keeping this ongoing pickup in violence this spring well on your radar screens as a source of incalculable political risk for 2010," they said in a research note.
For now though, oil prices — which climbed to 18 month highs on Monday — remain a key driver for the ruble.
"If oil holds close to $85 per barrel … this week then we will see further gains in the ruble," Chris Weafer, chief of strategy at UralSib, said in a note.
"The Central Bank's greater priority is inflation control, and [it] will be none too keen to pump more rubles into the system to restrain the exchange rate," he added.
The Central Bank seems unwilling to step up its currency market interventions for now. So its other key tool for reducing the appeal of the ruble would be to cut interest rates again.
Monday's data — which showed a fall in year-on-year inflation to 6.5 percent in March — leaves the Central Bank scope to continue to cut the refinancing rate from the current 8.25 percent while keeping it above inflation.
"The appreciation of the ruble … increases the chances that the Central Bank will decide to cut rates again at the end of April. Inflation also argues in favor of that," Trust Bank said in a research note.
However, another 25 basis point rate cut this month — as forecast by analysts — is unlikely to seriously dent the ruble's yield appeal, while rates in much of the developed world remain at about 1 percent and oil prices support economic growth.
Against the dollar, the ruble firmed to 29.18, its strongest since March 17. Versus the euro, it touched fresh 15-month peaks of 39.31.
One-year dollar/ruble nondeliverable forwards fell to 30.26, their lowest since October.
Its coffers filled by oil exports, Russia posted a current account surplus of $33.9 billion in the first quarter, data showed late Friday, in what VTB Capital said was a positive for the ruble.
But repayments of corporate foreign debt resulted in a net capital outflow of $12.9 billion for the first quarter despite a flood of investors into the ruble and stocks.