Russia Stocks Rise on Cyprus Bailout Debate, Rate Cut Optimism

Russian shares advanced on speculation the country’s depositors won’t suffer severe losses in Cyprus’s debt crisis and as the central bank signaled it may cut its main rates.

The Micex Index added 0.1 percent to 1,430.30 by the close in Moscow. Trading volumes were 30 percent below the 30-day average, while 10-day price swings slumped to 11.22, the lowest since March 15. OAO Sberbank, Russia’s largest lender, rose 0.9 percent. The stock has the third-biggest weighting on the Micex at 14 percent. OAO Magnit, the country’s largest food retailer by market value, added 1.4 percent. The dollar-denominated RTS Index decreased 0.4 percent to 1,440.10.

The “largest” share of nonresident deposits in Cyprus comes from Russia, Standard & Poor’s said in a March 26 report. Cyprus government officials will discuss easing bailout terms with representatives of the European Union and International Monetary Fund today, before a meeting of euro-area finance officials later this week. Russia’s central bank left its main interest rates unchanged for a seventh month while cutting rates on loans backed with gold and non-market collateral and on some longer-term repurchase operations by a quarter point.

“Today’s decision shows that the central bank is open to a rate cut, but at the same time wants to wait for inflation to slow further,” Vladimir Bragin, head of research at Alfa Capital in Moscow, where he helps manage $2.9 billion, said by phone. “This is a signal that they may cut rates, maybe in the third quarter. By lowering loan rates they eased the rates curve so that when they cut the main refinancing rate, the shock isn’t too strong.”

Consumer services stocks led the gains among nine industry groups, adding 1.1 percent on average. Out of 50 stocks on the Micex, 23 rose and 27 declined.

Inflation Rate

The refinancing rate was held at 8.25 percent, half a point above the record low, the Moscow-based central bank said in a statement on its website today. Bank Rossii Chairman Sergey Ignatiev said Feb. 15 that he hoped inflation would decelerate in the coming months, making rate cuts possible. Inflation was 7.2 percent as of March 25, above this year’s target rate of 5 percent to 6 percent.

The Moscow Exchange’s shares retreated for a second day, sliding 2.4 percent to 48.59 rubles. The bourse’s fee and commission income from the securities market fell 26 percent last year from a year earlier to 3.08 billion rubles, according to a statement.

Moody’s Investors Service placed long-term senior debt and deposit ratings of Sberbank, OAO Russian Agricultural Bank and VTB Bank under review for a downgrade, citing concerns that Russia’s capacity and willingness to support large banks in times of “systemic stress” could be lower than the ratings company had anticipated. VTB dropped 0.8 percent to 4.91 kopeks.

Russia’s fourth-quarter economic growth slowed to 2.1 percent, data showed today. Gas producer OAO Gazprom, Russia’s biggest company, retreated 1.5 percent to 130.90 rubles.

Crude Drops

Crude oil lost 0.6 percent to $96.48 a barrel, falling for the second day. Russia receives about half of its budget revenue from oil and gas.

Standard & Poor’s GSCI Index declined 0.4 percent to 650.77, erasing earlier gains. The Russian Depositary Index dropped 1.1 percent, led by OAO Novolipetsk Steel and OAO Severstal, which lost 2.4 percent and 3.2 percent respectively.

The RTS Volatility Index, which measures expected swings in stock futures, slipped 3.9 percent. The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, added 0.3 percent to $27.49 today. The Bloomberg Russia-US Equity Index declined 0.5 percent today.

Russian equities have the cheapest valuations among 21 emerging markets tracked by Bloomberg. The Micex trades at 5.3 times estimated earnings and has lost 3 percent this year, compared with 10.5 times for the MSCI Emerging Markets Index, which has slid 2.4 percent this year.

Before it's here, it's on the Bloomberg Terminal.