Russia Bonds Head for First Weekly Drop Since March on Rates

Russia’s ruble bonds headed for their first weekly decline since March after the central bank kept interest rates on hold.

The yield on benchmark OFZ bonds due February 2027 was unchanged by 6 p.m. in Moscow, leaving the yield nine basis points higher in the week at 6.94 percent. The ruble climbed 0.1 percent against Bank Rossii’s basket of dollars and euros to 35.3957 and weakened 0.2 percent against the dollar to 31.4180.

Bank Rossii kept its main short-term interest rates unchanged for the eighth straight month on May 15. Policy makers reduced costs on some longer-term loans, including those backed by gold and non-marketable assets, by 25 basis points. The central bank cited elevated inflation, which quickened to 7.2 percent in April, in its statement announcing the cut.

The drop in the bonds this week “is due to high inflation and the central bank leaving rates unchanged,” Dmitriy Gritskevich, an analyst OAO Promsvyazbank, said by e-mail. “Rate cut expectations have moved to the summer.”

The bank will cut to 7.75 percent by year-end, according to the median forecast of 17 economists surveyed by Bloomberg.

“The necessity to cut rates has ripened, and the central bank is in principle ready for this,” Gritskevich said. “We only have to wait for inflation to slow down.”

Russian GDP rose 1.6 percent in the first quarter from a year earlier, beating the 1.2 percent median estimate of 23 economists, surveyed by Bloomberg. GDP is slowing down for five straight quarter, the Federal Statistics Service in Moscow said today in an e-mailed statement.

Weak Data

“The data is strong only relative to expectations, and remains very weak in absolute terms,” Vladimir Osakovskiy, chief economist at Bank of America Corp. in Moscow, said by e-mail. “Therefore, the need for monetary support remains well in place.”

Brent oil rose 0.7 percent to $104.53 per barrel in London, extending its advance to three days. Oil and natural gas contribute about half of Russia’s budget revenue. The monthly tax period continues May 20.