Bank of Russia Cuts Key Rate, Sending Ruble to Three-Week High

The Russian central bank on Friday lowered its key interest rate by a quarter-percentage point to 7.5%, citing the recent change in course by the U.S. Federal Reserve toward looser monetary policy, RIA Novosti reported.

Bank of Russia Governor Elvira Nabiullina said in a statement that a further rate cut was possible at one of the bank’s upcoming board meetings.

“If the situation develops in line with the baseline forecast, the Bank of Russia admits the possibility of a further key rate reduction at one of the upcoming Board of Directors’ meetings and a transition to neutral monetary policy until  mid-2020,” she said.

The rate cut, the first since March 2018, and chances of further monetary easing mean prices for Russia’s OFZ treasury bonds should rise, making them more attractive. Demand for the bonds, a gauge of market sentiment toward Russian assets, generally supports the ruble. The Russian currency, which is also getting support from month-end tax payments beginning on Monday, prompting companies to convert their dollars to meet local duties, climbed to a three-week high on Friday.

Konstantin Kostrub, head of treasury at ING Eurasia, told Reuters that the central bank’s rate cut would only have a limited positive effect on the ruble. Tax payments, he said, could help the Russian currency for the remainder of June.

At 1348 GMT, the ruble gained 0.5% to 64.29 against the dollar and traded 0.7% higher against the euro at 72.28. Oil prices, which usually prop up the Russian currency, steadied on Friday but remained on track for a weekly loss.

Russian stock indexes were down. The dollar-denominated RTS index was down 0.3% to 1,342 points. The ruble-based MOEX Russian index was down 0.6% at 2,741 points.