The Russian government bonds rallied on Friday after Bank of Russia lowered its key policy rate by 50 basis points for the first time in nearly a year. The benchmark 10-year bonds yield, which moves inversely to its price fell 5 basis points to 8.640 percent by 10:40 GMT.
The Bank of Russia cut its key interest rate in its monetary policy meeting held Friday, citing steady ongoing inflation as the bedrock cause for the move. The central bank slashed the policy rate by 50 basis points to 10.5 percent, making a close call.
Further, the bank also flagged another possible rate cut, based on estimates for inflation risks. Inflation came in at 7.3 percent for a third consecutive month in May, according to the central bank.
“Slowing inflation allows more certain reliance on sustainable inflation reduction to less than 5 percent in May 2017 and the 4 percent target in late 2017, taking into account the decision just made and the retention moderately tight monetary policy,” the central bank said in its statement post the rate cut decision.
Liza Ermolenko of Capital Economics', however, said earlier this week that the big decline in Russian inflation had already happened and that it would edge up over the coming months, reports confirmed.
However, this was the first rate cut since July as the focus shifted away from risks to inflation after witnessing a rally in the Russian ruble amid stabilizing oil prices.
The Brent crude oil, a global benchmark for Russia's main export, was plunged more than 1 percent, after jumping beyond $51 mark on the stronger dollar. The International benchmark Brent futures fell 1.31 percent to $51.28 and West Texas Intermediate (WTI) dipped 1.23 percent to $49.94 by 11:50 GMT.
Meanwhile, The Russian ruble strengthened sharply after the announcement, but was last 0.12% weaker at RUB 64.3994 per USD and Micex Index of equities fell 1.07 percent to 191,025 by 10:40 GMT.
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