Ruble Drops After Central Bank Chief Hints at Coming Rate Cuts

  • Currency retreats from 2-day surge as oil falls under $40/bbl
  • Bonds fall, pushing yield on 5-year notes to three-week high

The ruble fell and Russian bonds declined the most in three weeks as oil reversed gains and the central bank hinted it could start cutting borrowing costs if inflation slows.

The currency weakened 1 percent to 68.2854 against the dollar by 7:45 p.m. in Moscow, as oil fell below $40 a barrel, giving up some of a 5 percent gain achieved on Wednesday. The yield on five-year Russian government bonds rose 10 basis points to 9.41 percent, the highest since March 16.

Central bank chief Elvira Nabiullina said on Thursday policymakers would cut interest rates "more actively" if inflation continued to slow toward a 4 percent medium-term target. Russia has kept borrowing costs on hold since September at 11 percent after slashing its base rate by 600 basis points earlier in 2015.

“Nabiullina’s comments on the rate-cut cycle were not supportive for the ruble,” said Guillaume Tresca, an emerging-market strategist at Credit Agricole SA in Paris. ”All high-yielding currencies have been under pressure today. The emerging-market rally is definitely losing steam.”

The ruble has strengthened more than 4.5 percent in the past month, beaten only by the Argentine peso in a group of 24 major developing country peers. The MSCI Emerging Markets Currency Index slipped 0.1 percent. The gauge has declined 1.2 percent in April following a 5.2 percent surge that was the biggest since records began in 1999. The Micex Index of major stocks declined 0.1 percent to 1,859.

The central bank next meets on April 29 to decide on borrowing costs.

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