Russia Bonds Gain After Central Bank Ends 11-Month Easing Hiatus

  • Bank of Russia opens door for more cuts on easing inflation
  • Yields go back to pre-sanction levels on notes due 2027

Bank of Russia Resumes Easing Cycle With Rate Cut

Russia’s bonds gained after policy makers cut interest rates for the first time in almost a year, sending yields toward a level last seen in 2014 before the double whammy of an oil crash and international sanctions.

Speculation the 50 basis-point reduction in borrowing costs will ease a two-year recession was stoked by the Bank of Russia’s forecast the economy will swing to growth in 2017. The ruble weakened 0.4 percent to 64.5700 per dollar at 3:30 p.m. in Moscow.

“Markets see starting of the monetary easing cycle as positive for economic growth,” said Vladimir Miklashevsky, senior strategist at Danske Bank A/S in Helsinki. He expects the ruble to trade in a range between 64 and 65 per dollar if oil remains at current levels.

For more on the decision, click here.

The yield on benchmark notes due 2027 dropped seven basis points to 8.59 percent, the lowest since July 11, 2014, just before the U.S. imposed sanctions on some of Russia’s biggest companies over Moscow’s role in Ukraine’s conflict.

Further rate cuts may be in store if estimates of a slowdown in inflation are fulfilled, the Bank of Russia said in a statement. A stronger ruble and stability in the price of oil since the start of the year, the nation’s biggest export earner, is containing price growth to the slowest pace in two years.

Policy makers have kept the key rate unchanged at 11 percent since July 31, even as the economy foundered in recession, in favor of sticking to inflation targets under pressure from a falling ruble.

A narrow majority of 43 economists in a Bloomberg survey correctly forecast the decision.

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