Azernews.Az

By Bloomberg

Russian rates fell to the lowest level since November as Bank of America Corp. predicted continued cuts to central bank borrowing costs.

The yield on one-month ruble forwards declined five basis points to 12.60 percent at 1:43 p.m. in Moscow after spiking as high as 47.17 percent in December after the Bank of Russia increased its key rate to 17 percent in an emergency move to stabilize its currency. The ruble weakened 0.8 percent to 56.9710 against the dollar today as crude oil, the nation’s biggest export earner, slumped following a deal to end sanctions on Iran.

The central bank needs to cut rates without pauses if it wants to continue its program of buying dollars to replenish its international reserves, Vladimir Osakovskiy, the chief Russia economist at Bank of America, said by e-mail. It has purchased about $8 billion since May 13 as it seeks to increase reserves to $500 billion from $360 billion today.

“Current level of policy rates is overly high for the economy, which creates excesses of liquidity in the banking system,” Osakovskiy said. “There’s not enough demand for new loans at these rates, while at the same time saving has increased.”

Inflation, the central bank’s target indicator, which has been on the decline since peaking at 16.9 percent in March, may accelerate in the “medium term” as the central bank pumps liquidity into the system, Osakovskiy said. Still, the rate will be cut by 50 basis points this month, he said.

Inflation Risks

Policy makers lowered the key rate by 550 basis points this year. Lenders, including Morgan Stanley, Credit Suisse Group AG and OAO VTB Bank, have warned this month that the central bank might be less inclined to lower rates in July because of inflationary risks.

The yield on the five-year government note rose three basis points to 11.07 percent, increasing for the first time in five days today. The Micex index of stocks fell 0.9 percent.

Brent crude, the blend used to benchmark Russian oil sales, slid 0.8 percent to $57.39 a barrel following a 1.5 percent drop yesterday as Iran and six world powers sealed an accord to curb the Islamic Republic’s nuclear program in return for ending sanctions.