Ruble Gains 2nd Day as Inflation Warning Curbs Rate Cut Wagers

The ruble climbed for a second day after the Bank of Russia warned on Monday that it may slow the pace of policy easing in the face of possible inflation risks.

Government bonds fell, while the currency strengthened 0.4 percent to 54.3090 versus the dollar as of 4:03 p.m. in Moscow, trimming the biggest depreciation globally in the past month to 9.2 percent. Forward-rate agreements signaled 25 basis points of decreases in the next three months, the least since December, data compiled by Bloomberg show.

The ruble’s gains came after the central bank delivered its smallest cut in interest rates since March on Monday, prompting speculation policy makers are concerned dollar purchases aimed at boosting reserves have fueled excessive ruble weakness. Central bank Governor Elvira Nabiullina reiterated yesterday that she’s committed to targeting inflation and Deputy Finance Minister Alexey Moiseev said in an interview that Russia isn’t aiming at the exchange rate.

“The Bank of Russia showed some inconsistency in its approach to monetary policy by signalling that it may pause interest-rate cuts in the coming months due to inflation risk,” Piotr Matys, a London-based foreign-exchange strategist at Rabobank, said by e-mail. “Yesterday’s far less dovish comments from the central bank might bring under pressure the key ruble threshold of 50 against the dollar.”

Banks including PAO Rosbank and ING Groep NV have questioned whether policy makers are moving away from their free-float policy announced in November, in which market conditions set the ruble’s exchange rate.

No Issues

The central bank and Finance Ministry said in May that they were buying dollars and euros to build up foreign-currency holdings, after oil’s stabilization and a cease-fire in Ukraine spurred an 18 percent rally in the ruble, the biggest worldwide. It’s still up 12 percent this year, almost double the Swiss franc’s 6.6 percent gain, the world’s second-best performer.

The decision by the Finance Ministry and the Bank of Russia to start selling the ruble in the same month wasn’t “specially planned” and reflected the ministry’s view that the currency was “overvalued” at the time, Moiseev told Bloomberg.

“Our actions with the central bank are highly coordinated,” he said. “However, the extent of our coordination is sometimes overestimated.”

Moiseev said he doesn’t see “any issues” with the central bank’s decision to start buying foreign currency. “I don’t think this is a departure from the free-floating ruble,” he said.

The Micex stock index rose 0.5 percent to 1,665.71, while the dollar-denominated RTS Index advanced 1.2 percent to 969.08.

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