Rouble eyes Russian c.bank move as emerging markets slash rates

Credit: REUTERS/SERGEI KARPUKHIN

The rouble weakened slightly on Thursday as the market was pricing in a likely rate cut by the Russian central bank after central banks in other emerging market slashed rates this week.

By Alexander Marrow

MOSCOW, Oct 24 (Reuters) - The rouble weakened slightly on Thursday as the market was pricing in a likely rate cut by the Russian central bank after central banks in other emerging market slashed rates this week.

The Russian central bank is widely expected to trim the cost of borrowing by lowering its key rate, now at 7%. But market analysts keep on arguing about the scale of the upcoming rate cut.

Yields on Russia's 10-year OFZ treasury bonds, which move inversely to their price, dropped to a new six-year low on Thursday of 6.44%, before rising to 6.52% over the course of the day. RU10YT=RR

The rouble was 0.1% weaker on the day against the dollar at 64.04 RUBUTSTN=MCX and had lost 0.3% against the euro to trade at 71.36 EURRUBTN=MCX, as market players were pricing in the rate cut as soon as on Friday.

"We had always thought that the inflation outlook warranted further loosening," said William Jackson of Capital Economics research firm. "The headline rate could fall as low as 3% in early 2020 and we had in any case expected more cuts - our end-2020 forecast is 6.00%.

"However, the recent set of comments from the central bank suggest that they are trying to get ahead of the curve by opting for cuts larger than the usual 25 basis points."

Central Bank Governor Elvira Nabiullina said last week the bank would consider a decisive rate cut amid slowing inflation, the bank's key area of responsibility.

The Russian rate cut would crown a series of similar moves by its emerging market peers.

Turkey's central bank slashed rates by 250 basis points to 14% on Thursday, far greater than the 100-basis-point cut predicted by a Reuters poll.

Ukraine, meanwhile, cut rates for the fourth time this year, down 100 basis points to 15.5%, also steeper than expected.

Indonesia's central bank stepped up efforts to boost Southeast Asia's largest economy by cutting its benchmark interest rate for the fourth time in four months.

The rouble was also under pressure from a survey revealing sluggish Euro zone business activity, just hours before Mario Draghi's final appearance as ECB President, with currency traders seeking safe havens.

Brent crude oil LCOc1, a global benchmark for Russia's main export, was up 0.4% at $61.4 a barrel.

Russian stock indexes were up. The dollar-denominated RTS index .IRTS was up 0.9% to 1,404.5 points. The rouble-based MOEX Russian index .IMOEX was 1.2% higher at 2,856.1 points.

Shares in TCS Group Holding PLC TCSq.L, owner of Tinkoff Bank, were up 1.4% on Thursday, ahead of the group's listing of its Global Depositary Receipts on the Moscow Exchange MOEX.MM on Oct. 28.

For Russian equities guide see RU/EQUITY

For Russian treasury bonds see 0#RUTSY=MM

(Reporting by Alexander Marrow; Editing by Catherine Evans)

((alexander.marrow@thomsonreuters.com; +7 495 775 1242;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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