Ruble rebounds after sudden rate cut

A Russian one ruble coin is seen in this illustration taken April 5, 2022. REUTERS/Maxim Shemetov/Illustration

April 8 (Reuters) – The Russian ruble hit its highest level since June 2020 against the euro on Friday after an unexpected central bank rate cut, while stock indices were mixed after the U.S. Congress voted to ban on Russian oil.

The central bank cut its key interest rate to 17% from 20% in a surprise move ahead of a regular board meeting scheduled for April 29, and said it was open to possible further cuts during future meetings. Read more

The ruble quickly regained gains after edging slightly after the move, which partially reversed the emergency rate hike the central bank announced in late February after Russia launched what it calls “a special military operation.” in Ukraine on February 24.

At 11:16 GMT, the ruble gained 1.8% to 74.42 against the dollar, approaching its highest level since February 11, at 74.2625 reached on Thursday. Read more

Against the euro, the ruble rebounded almost 3% to 79.10 after briefly touching the 79 mark for the first time since late June 2020.

Yields on 10-year OFZ Treasury notes, which move inversely to their prices, fell to 10.93% from 11.62% before the rate move.

The surprise rate decision follows comments by Finance Minister Anton Siluanov, who said this week that his ministry was working with the central bank on measures to make the ruble’s exchange rate more predictable and less volatile.

“If the experience of the 2014/15 ruble crisis is any guide, a sharp decline in interest rates (like the one seen today) is likely to be followed by a much more gradual easing, the CBR aiming for a significant positive real interest rate to bring inflation back to its target,” Capital Economics said in a note.

LockoInvest said it revised its year-end rate forecast to 11-12% from a maximum of 15%.

VOLATILE RUBLE

Ruble movements remain jittery and trading volumes on the Moscow Stock Exchange are below average, but the ruble has fully recovered to levels seen before Russian troops entered Ukraine.

The ruble is supported by Russia’s strong current account surplus amid high commodity prices as well as Russian capital controls, said Olga Belenkaya, head of macro research at Finam brokerage.

The ruble has recently been driven by the compulsory conversion of income into dollars and euros by export-oriented companies, while the demand for currencies is limited by a ban on buying dollars and euros in cash as well as by a 12% commission on the purchase of currencies online or via a bank.

Given the latest strengthening of the ruble, some recovery in demand for foreign currency is possible even despite the commission, Otkritie Bank said in a note.

The ruble will tilt to firmer without central bank action and could enter the 70-75 range to the dollar during the day, Promsvyazbank analysts said in a note.

On the stock market, the RTS index denominated in dollars (.IRTS) rose 0.7% to 1,099.5 points. Russia’s rouble-based MOEX index (.IMOEX) fell 1.4% to 2,598.0 points.

Shares of oil company Bashneft (BANE.MM) underperformed the market, losing 4% on the day, while shares of rival Lukoil (LKOH.MM) fell 1.4%.

Oil stocks took a hit after the US Congress voted to impose further economic hardship on Russia for its actions in Ukraine, passing a measure to remove its ‘most favored nation’ trade status and another to ban oil imports. Read more

Reuters reporting; Editing by Kim Coghill and Carmel Crimmins

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