Rouble leads EM currency losses

18/04/2015 01:06 AST

The prospect of deeper interest rate cuts took Russia’s rouble more than 2% lower yesterday, knocking it off 4-1/2-month highs against the dollar, while Russian equity markets also slipped.

The rouble touched a low of 51.2 per dollar after central bank governor Elvira Nabiullina said late on Thursday the currency had found its equilibrium and its appreciation provided a basis for further rate cuts.

After slumping to around 80 per dollar in late 2014, the rouble has rallied as the oil market shows signs of having bottomed out and fighting in eastern Ukraine between pro-Russian separatists and Ukrainian government forces has eased.

“The rouble has appreciated so much recently that from the point of view of the central bank and government it makes sense to try and cap it so as not to erode too much the competitiveness gains they got from the depreciation,” said Sebastien Barbe, head of emerging market strategy at Credit Agricole in Paris.

Standard & Poor’s and Fitch are due to publish ratings for Russia. Downgrades are seen as unlikely because of the more stable economic conditions seen in recent months.

Russian dollar-denominated stocks fell 1.5% and the rouble index also slipped as oil prices came down from 2015 highs, but they are up some 16% this month. The likelihood of rate cuts may boost local bonds though, with 10-year yields touching a new 4-1/2 month low around 10.3%.

Broader emerging market stocks also paused in a rally that earlier took the MSCI emerging markets index to a new seven-month high.

Though the benchmark gave up earlier gains to fall 0.2%, it was still headed for a third consecutive weekly gain after lacklustre economic data in the US persuaded more investors a rate hike from the Federal Reserve is less imminent than once thought.

The Asia Pacific ex-Japan index eased 0.2% but stayed near seven-year highs after a 2.3% gain for Shanghai shares.

In emerging Europe, Turkish stocks rose 0.8% while the lira fell 0.3% approaching the record lows hit earlier this week on back of pre-election tensions.

Hungary’s forint remained under pressure near a three-week low against the euro after the European Union suspended a development fund payment over concerns about how Budapest allocated the money. Hungarian stocks also slipped, led by a 0.75% loss for its biggest bank, OTP.

Reuters