- Lower rates would jeopardize second-best emerging-market rally
- Survey of economists tips in favor of half-point cut Friday
The ruble weakened for the first time in six days as Bank of America Corp. said it’s time to pare back holdings because of the risk of an interest-rate cut Friday.
Russia’s currency lost 0.9 percent against the dollar to 64.21 by 5 p.m. in Moscow, following a 15 percent rally this year, the second-best performance among emerging-markets peers. Bank of America strategists led by David Hauner forecast a depreciation to 65 per dollar after June.
"For the ruble the best is likely over," said Hauner, who predicts the Bank of Russia will lower its key rate 50 basis points tomorrow, ending a pause of almost a year. “We have been long the Russian local market since March 2015. But now our impression is that it has become a consensus trade.”
A reduction in rates would sap profits for carry traders who had bought rubles using money borrowed in lower-yielding currencies. Hauner and Citigroup Inc. economist Ivan Tchakarov are among 22 of 42 economists surveyed by Bloomberg who forecast a cut tomorrow. They cite inflation holding steady for three month at the slowest pace since 2014, oil stabilizing and the ruble recovering as fertile conditions for the central bank to resume easing.
Policy makers hewing to inflation targets have held the rate at 11 percent since July 31, avoiding much-needed stimulus to an economy in recession.
The Micex index of major Russian stocks fell 0.7 percent to 1,937.79 as the country’s largest retailer Magnit PJSC plunged 4.2 percent after reporting May sales data. Bonds fell, sending the yield on 10-year notes up four basis points to 8.69 percent after it closed yesterday at the lowest level since July 2014.