Refiles to add dropped word OFZ in the headline
MOSCOW, May 20 (Reuters) - The Russian rouble firmed on Monday, buttressed by high oil prices and demand for Russian sovereign bonds which rallied to their highest levels since August 2018.
Demand for Russian OFZ treasury bonds is seen as a gauge for global market sentiment towards Russian assets and has supported the rouble in recent weeks.
Buying of rouble-denominated OFZ bonds got a boost from expectations that the Russian central bank would soon cut rates, which will send their yields lower while boosting their prices.
Such expectations were reinforced on Monday after First Deputy Governor Ksenia Yudayeva said low and steady inflation was the reason for a rate cut, adding that the central bank has lowered its year-end inflation forecast.
An unexpected slowdown in Russia's economic growth also raised hopes for a rate cut that should beef up the oil-dependent economy through cheaper lending.
Yields of 10-year benchmark OFZ bonds dropped to 8.01% after her comments, their lowest levels since August seen before a massive sell-off caused by concerns about possible U.S. sanctions for Russian debt holders RU10YT=RR.
Foreigners were seen snapping up OFZ bonds in the past few weeks, which helped the finance ministry to auction record volumes of rouble-denominated papers.
The rouble gained 0.5% to 64.45 against the U.S. dollar as of 1441 GMT RUBUTSTN=MCX and had gained 0.4% to trade at 71.94 versus the euro EURRUBTN=MCX.
"The rouble can be volatile in the short term, the target range is 64-65 roubles per dollar," Sberbank Asset Management said in a weekly note.
Russian assets were supported by oil prices that rose to multi-week highs on Monday after OPEC indicated it would probably maintain production cuts which have helped support prices this year.
Brent crude oil LCOc1, a global benchmark for Russia's main export, was up 0.6% at $72.68 a barrel.
"The rouble could still grow because the market is awaiting a rate cut by the central bank, including because of the growing demand for OFZ bonds," said Alexei Antonov, an analyst at Alor Brokerage, referring to bonds that are auctioned weekly by the finance ministry.
Russian stock indexes were mixed. The dollar-denominated RTS index .IRTS was up 0.3% at 1,257.8 points. The rouble-based MOEX Russian index .IMOEX was 0.2% lower at 2,573.1 points.
For Russian equities guide see RU/EQUITY
For Russian treasury bonds see 0#RUTSY=MM
(Reporting by Gabrielle Tétrault-Farber and Andrey Ostroukh, Editing by Ed Osmond)