Russian stocks fell the most in more than six weeks amid speculation the nation’s central bank will refrain from cutting rates this week as inflation remains above target. Crude oil declined for the third day.
The benchmark Micex Index dropped 2 percent, the most since June 20, to 1,364.65 by the close in Moscow. OAO Moscow Exchange slumped 5.5 percent to 56.16 rubles, the biggest decrease on the gauge. OAO Lukoil lost 3 percent as crude oil, Russia’s main export earner, sank as much as 1.5 percent to $104.99 a barrel in New York.
Bank Rossii will hold a rates meeting on Aug. 9 after keeping its main lending rates unchanged for a 10th month in July, as policy makers wait for inflation to drop within the target range of 5 percent to 6 percent. Dallas President Richard Fisher said yesterday the U.S. Federal Reserve is closer to slowing its bond buying program.
“The majority of market players don’t expect a rate cut on Friday since we’re still above the inflation target,” Yaroslav Lissovolik, Moscow-based head of research at Deutsche Bank AG, said by phone. “It’s still too early to cut rates and the market also fears that the Fed will start curbing its stimulus program.”
Bank Rossii will leave the refinancing rate at 8.25 percent at the meeting, according the median estimate of 19 economists in a Bloomberg survey. Russia’s inflation rate dropped to 6.5 percent in July from a year earlier, the slowest pace in eight months and compared with 6.9 percent in June, the Federal Statistics Service in Moscow said yesterday.
Elvira Nabiullina, who took over as head of the central bank on June 24, is offering banks longer and cheaper funds to help funnel cash into the economy and boost growth. Above-target increases in the cost of living have hampered the bank’s ability to head off the slowdown, even as economic growth slumped in the first half to a four-year low of 1.7 percent.
The Micex tumbled the most in a year on May 23, the day after Fed Chairman Ben S. Bernanke said the central bank could reduce the pace of its asset purchases if officials see signs of sustained improvement in growth. The Fed buys $85 billion of debt a month to support the economy by putting downward pressure on interest rates. The U.S. non-manufacturing index beat estimates for July, data released yesterday showed.
Russia’s July Services Purchasing Managers’ Index retreated to the lowest since August 2010, HSBC Holdings Plc said in a report yesterday. Russia receives about half of its budget revenue from oil and natural gas sales.
M.video, Russia’s largest electronics retailer, tumbled 3.9 percent to 275.1 rubles after jumping the most in more than a year yesterday. OAO Inter RAO UES retreated 4.1 percent to 1.23 kopeks, while OAO RusHydro lost 1.9 percent to 56.68 kopeks.
Russian equities have the cheapest valuations based on estimated earnings among 21 emerging economies tracked by Bloomberg. The measure trades at 5.2 times its 12-month estimated earnings, compared with a multiple of 10 for the MSCI Emerging Markets Index.
The dollar-denominated RTS Index dropped 2.1 percent to 1,304.98, the second day of declines. The volume of shares traded on the Micex was 53 percent below the 30-day average, data compiled by Bloomberg show.