The economy put recession behind it with third quarter growth, data showed Tuesday, giving investors a further reason to chase the ruble to its strongest since December against the dollar.
The ruble reached as high as 29.14 per dollar on Tuesday, before finishing the day at 29.20. Analysts said the Central Bank, by letting the ruble scale new highs, confirmed that Russia is gradually moving toward a freely floating currency.
A recovery in oil and commodity prices, a revival in global debt markets and investors’ renewed appetite for emerging markets put Russia’s economy on the recovery path in the summer.
Gross domestic product grew 0.6 percent in the third quarter from the previous three months, data from the Economic Development Ministry showed. The annual decline eased to 9.4 percent, according to the ministry. That compares with a reported 10.9 percent record contraction in the second quarter.
“We can talk about an exit from recession,” Finance Minister Alexei Kudrin told reporters in St. Petersburg.
The recovery thesis was further supported by a reduction in the jobless rate and a pickup in retail sales.
The unemployment rate fell to 7.6 percent, or 5.8 million people, from 7.8 percent in August, the State Statistics Service said. Retail sales rose 0.3 percent from August, growing for the fifth consecutive month, after a 1.8 percent rise in August, the service said. On an annual basis, sales declined 9.9 percent.
“You’ve got a huge stimulus program as well as improvement in commodity prices, global risk appetite, global trade recovering,” said Neil Shearing, emerging markets strategist at Capital Economics in London. “Signs of a tentative recovery are clearly good news, but there are big vulnerabilities that remain. Much depends on the oil price.”
Oil traded in New York touched $80 a barrel on Tuesday, bringing this year’s gains to almost 80 percent.
The economy has also been given a boost by 300 basis points worth of interest rate cuts since April and officials’ signals that more will come as long as inflation keeps easing.
Full-year inflation will not exceed 10.3 percent, compared with the government forecast of 11 percent to 12 percent, the Central Bank’s First Deputy Chairman Alexei Ulyukayev said.
Despite the rate cuts, Russia’s refinancing rate at 10 percent offers attractive yields compared with rates of 1 percent or less in the rest of the G8.
Along with the brighter economic outlook and stronger oil prices, this has been one of the factors supporting the ruble. The Central Bank has been regularly intervening in the currency market in a bid to smooth out exchange rate fluctuations. It bought more than $1 billion on Tuesday, Ulyukayev said.
The Central Bank likely moved its intervention level for a second time on Tuesday, dealers said, allowing the ruble to set a fresh high versus the euro-dollar basket. The currency strengthened as far as 35.66 versus the basket, which the Central Bank uses to guide its exchange-rate policy, making its strongest gain since January. Dealers said the new level was likely located at 35.65, compared with its previous level of 35.70.
The ruble has notched up seven consecutive weeks of gains versus the basket, propelled by strong oil prices, growing investor appetite for high-yielding emerging markets and signs that the domestic economy is on the mend.
Urals crude rose to one-year highs above $75 a barrel this week. When it was last so strong, the ruble traded at 30.40 versus the basket — some 15 percent stronger than now, potentially leaving scope for further appreciation.
Dealers said the regulator moved its intervention level to 35.70 from 35.75, following its policy of moves in 5 kopek steps for each $700 million of interventions. “I think what we are seeing is an almost complete move to a policy of inflation targeting,” said Vladimir Tikhomirov, an economist at UralSib.
“The Central Bank now sees its aim as smoothing out [ruble] fluctuations, rather than fixing the rate at a particular level,” he said. “The latest comments suggest that on the part of the government such policy has met with support.”
(Reuters, Bloomberg)