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By Bloomberg

The ruble retreated from the strongest level in two months and Russian bonds declined as oil traded below $60 a barrel for a third day, paring appetite for assets in the world’s biggest energy exporter.

The decline trimmed the ruble’s advance since the end of January to 14 percent, a rally that took hold as Brent crude rebounded from a six-year low. Russia’s currency remains 40 percent lower over the past 12 months as its economy was battered by oil’s decline and sanctions over its role in Ukraine. Pro-Russian separatists traded blame with Ukraine’s government over violations of the latest cease-fire.

“The oil price has finally turned south,” Slava Smolyaninov, a strategist at UralSib Capital in Moscow, said by e-mail. “Fighting in Ukraine still goes on, with potential new sanctions implications in the air.”

The ruble weakened 0.6 percent to 60.8150 against the dollar by 1:17 p.m. in Moscow after climbing to the strongest since Jan. 8 at the end of last week. The government’s five-year bonds declined for a second day, lifting the yield four basis points to 13.64 percent after last week’s 84 basis point drop. Brent crude, the benchmark used to price Russia’s main export blend, fell for the fifth day, retreating 1.1 percent to $57.87 a barrel. Russian markets were closed for a public holiday on Monday.

A stronger ruble and signs that inflation may have peaked have spurred traders to increase bets that central bank Governor Elvira Nabiullina will cut rates at the regulator’s next meeting on March 13 in a bid to keep lending flowing. Gross domestic product will contract by 4 percent this year, according to the median of 40 estimates compiled by Bloomberg.

Unwinding Rates

Forward-rate agreements compiled by Bloomberg showed expectations for a 148 basis-point reduction in benchmark borrowing costs in the next three-to-six months, up from 47 basis points at the start of last week. The Bank of Russia lowered its key rate by 200 basis points to 15 percent in January, partially unwinding an emergency 6.5 percentage-point increase in December to stem the ruble’s collapse.

While February’s inflation rate jumped to a 13-year high, the pace of weekly price growth slowed to 0.2 percent in the seven days through March 2 from 0.6 percent.

Bank of Russia may cut the key rate by 150 basis points to 13.5 percent as “recent dataflow has seen further evidence of stabilization,” VTB Capital analysts Vladimir Kolychev and Alexander Isakov said in an e-mailed note.

Policy makers are looking “beyond the recent CPI trend” and will likely lower the key rate by 100 basis points, Vladimir Pantyushin, an analyst at Sberbank CIB, wrote in a note to clients Tuesday.

‘Psychological Factor’

The dollar-denominated RTS stock index slumped 3.1 percent to 875.56. OAO Rosneft, Russia’s biggest oil producer, declined for a second day, losing 2.6 percent. OAO Sberbank, the nation’s largest lender, fell 3.3 percent.

“Oil is trading below $60, below an important psychological factor for investors into Russian assets,” Sergey Vakhrameev, a money manager at GL Financial Group, said by phone from Moscow. “Concerns over Ukraine and the price of oil are still there.”

Insurgents broke the terms of the accord near Shyrokyne, east of the port city of Mariupol, according to Oleh Sushynskyi, a spokesman for Ukraine’s military in the area. Separatist forces used mortars and a tank in attacks Monday, he said by phone. Rebels in turn accused Ukraine of firing on their positions 22 times in the past day and not pulling back artillery far enough, Russia’s state-run news service RIA Novosti reported, citing Donetsk separatist official Eduard Basurin.