Rouble rallies, analysts warn euphoria may be short-lived

MOSCOW: The Russian rouble rose strongly on Monday, supported by rising oil prices and looming tax payments by exporters who need to convert their foreign currency revenues to pay bills, but analysts said the rally could be short-lived.

At 1155 GMT, the rouble was 2.0 percent stronger against the dollar at 52.54, after trading as much as 3 percent higher on the day. It also firmed 2.9 percent to trade at 55.36 to the euro.

Oil prices rose towards $59 per barrel on Monday after ending last week strongly as financial traders increased bets on higher prices amid a slowdown in U.S. drilling.

The period for Russian monthly tax payments, which increase demand for the rouble, starts on April 15, with the peak coming towards the end of the month.

The rouble rallied for most of last week, recording one of its strongest weekly performances since 1998. But on Friday it weakened after the central bank said it would raise the rates at which it lends foreign currency to banks from Monday.

The central bank has been providing foreign currency to banks via repo arrangements since October, when it introduced the tool to try to regulate the market as the rouble was plummeting.

The bank raised the repo rates on Friday to LIBOR plus 1.5 percentage points for 7-day and 28-day repos, and to LIBOR plus 1.75 percentage points for one-year repos.

"The central bank continues to restrict the inflow of cheap dollar liquidity, which seems natural considering what's happening on the swap forex market," analysts at Rosbank wrote in a note.

"However, (the central bank's) actions remain soft enough not to cause panic in the market."

Analysts said the rouble rally could end soon. On Monday, the central bank said it had sold $3 billion at its one-year repo auction at an average yield of 2.5955 percent. It was due to hold a 28-day repo auction later in the day.

"We believe the rouble remains overbought," Alexander Kostyukov, an analyst at Veles Capital investment firm, wrote in a note.

"The central bank may limit the amount offered at the forex repo auctions as soon as today, which will lead the rouble back to more justified levels."

Anton Startsev, an analyst at Olma investment house, wrote in a note that technical analysis indicated that there was a possibility of the rouble weakening to 56 per dollar in the short term.

Russian equities also firmed, with the dollar-denominated RTS index up 1.45 percent to 1,013 points, and its rouble-based peer MICEX trading 2.01 percent higher at 1,691.