Ruble May Recover in `Matter of Days,' Says Top Forecaster

(Bloomberg) -- Relief may be just around the corner for the beleaguered Russian ruble, according to the currency's best forecaster.

“If there's no further comments from the U.S., it could be a matter of days before the Russian markets start rebounding -- it could be the end of this week or the start of next week,” said Sebastien Barbe, the Paris-based head of emerging-market research and strategy at Credit Agricole CIB and the most accurate ruble predictor since the second quarter of 2017.

“The market sell-off isn't backed by fundamentals, it's driven by the sanctions, which means that at some point, the asset prices will likely stabilize,” Barbe said in a phone interview.

The ruble sank to its lowest since 2016 and government bonds were pummeled after the U.S. imposed its stiffest sanctions yet against Russian companies and oligarchs. While businesses in the country have been laboring under sanctions in one form or another since 2014, the latest penalties are much tougher as they include a ban on publicly-traded Russian companies, such as United Co. Rusal.

Some analysts and traders are comparing this week's market volatility to jitters last seen in 2014, when the ruble fell to a record low during the height of the Ukraine conflict and an almost 50 percent drop in the price of oil. This time around, however, economic fundamentals and oil trading at around $70 a barrel play in Russia's favor, according to Barbe.

“There's a big difference between now and 2014, because at that time the main trigger, the main negative factor, was the collapse of oil prices,” Barbe said. “Now that oil is calm, Russia is out of the recession, Putin was just re-elected, people will look at the asset prices, at the economic fundamentals and some will be tempted to buy amid expectations of stabilization.”

The Russian currency weakened 1.9 percent to 64.19 against the dollar on Wednesday. After canceling this week's bond auction, the Finance Ministry said late Tuesday that it doesn't expect volatility to remain elevated for long and that bond auctions will resume regularly once the market stabilizes.

Brave Faces

Russian officials are putting on brave faces, saying the sanctions pose no threat to financial stability and don't require any response from authorities. The ruble's floating exchange rate helps the economy adapt to shocks, and the central bank can use interest rates to offset any increase in inflation caused by currency weakness, central bank Governor Elvira Nabiullina said at a conference in Moscow on Tuesday.

Still, an air of unpredictability about who or what might be the next target is spooking foreign investors. One trend Barbe sees as exacerbating the ruble weakness is a sell-off in Russia's local debt, known as OFZs, by foreigners, who hold a record-high 34 percent.

The pressure may ease once these investors have had a chance to assess the impact of the latest U.S. moves, Barbe said. “People need some time to figure out what the new sanctions mean,” he said.

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Torrey Clark at tclark8@bloomberg.net, Yakob Peterseil, Alex Nicholson

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