UPDATE 2-Nervous Oil Prices Limit Ruble Gains After Surprise Rate Hike
(Update prices, adds Sberbank)
MOSCOW, March 19 (Reuters) – The Russian ruble recovered from a 10-day low against the dollar on Friday after the central bank unexpectedly raised its key rate, but gains were limited by fluctuations in oil prices and concerns about possible further US sanctions on Moscow.
The ruble has suffered this week since US President Joe Biden said his Russian counterpart Vladimir Putin would “pay a price” for alleged interference in the 2020 US election.
A surprise 25 basis point rate hike by the central bank and the promise of more to come briefly inflated the ruble before oil prices turned negative, adding to the pressure on Russian assets.
At around 3:10 p.m. GMT, the ruble was 0.3% stronger against the dollar at 74.09, moving away from its lowest level since March 9 of 74.48 hit earlier in the day, but struggling for gain a foothold below the threshold of 74.
Higher rates increase the yields offered by the Russian market and make loans more expensive, which could support the ruble and keep inflation under control, but is negative for the economic recovery.
Tightening monetary policy is positive for the ruble, but “expectations of further sanctions next week point to increased volatility next week,” said Dmitry Polevoy of Locko Invest.
Yields on 10-year ruble Treasury bonds, which move in the opposite direction of their prices, climbed to 7.06% after the rate hike, their highest in nearly a year.
Against the euro, the ruble gained 0.6% to 88.08, still far from a seven-month high of 86.5150 reached earlier this week.
Brent crude oil, a benchmark for Russia’s main export, limited the ruble’s gains as it has fallen sharply since it hit $ 70 a barrel on Monday.
Brent rose 0.7% to $ 63.68 a barrel, after posting losses earlier in the day.
Russian stocks were down. The RTS dollar-denominated index fell 0.8% to 1,477.0. The ruble-based MOEX index was down 0.8% to 3,475.6, after hitting an all-time high of 3,602.18 on Monday.
Sberbank shares outperformed the overall market with a gain of 1.7% after Russia’s largest lender approved 2020 dividends of around 56% of net profit. ($ 1 = 74.1875 rubles) (edited by Subhranshu Sahu, Barbara Lewis)