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Russia Cuts Ruble Swap Rate in Pivot Toward Easing

By Scott Rose and Olga Tanas - Dec 10, 2012


Russia, the largest emerging economy to raise rates in 2012, took a step toward the first round of monetary easing in a year after the economy slowed and inflation stabilized.

Bank Rossii cut the cost to swap foreign currency into rubles by a quarter point to 6.5 percent, the Moscow-based central bank said in a statement on its website today. The regulator raised the deposit rate to 4.5 percent from 4.25 percent, effective tomorrow, and left its main lending rates unchanged, calling the moves “neutral” for monetary policy.

Central bank Chairman Sergei Ignatiev is moving to relax borrowing costs three months after increasing all 21 rates in his toolkit to fight the fastest inflation this year. Policy makers said money-market rates are “acceptable for the nearest future” for the first time since July.

“If anything, it’s probably more easing of monetary policy than tightening,” said Vladimir Osakovskiy, chief economist at Bank of America Merrill Lynch in Moscow. “Now the effective rate on the money market is 6.5 percent. When there’s a liquidity shortage, lowering the rate on swaps is more relevant to the market than raising deposit rates.”

Three-month borrowing costs may fall 37 basis points, or 0.37 percentage point, in the next three months, the biggest decline predicted by traders in more than three years, according to forward-rate agreements tracked by Bloomberg. That compares with a jump of as much as 54 basis points forecast on May 17.

Currency Swaps

Policy makers held the refinancing rate at 8.25 percent and the main short-term repurchase rates at 5.5 percent. The central bank last cut the rate on currency swaps from 8 percent in June, and First Deputy Chairman Alexey Ulyukayev said last month that the rate may be lowered again to offer liquidity when the ruble comes under pressure.

MORE - http://www.bloomberg.com/news/2012-12-10/russia-unexpectedly-raises-deposit-rate-cuts-ruble-swap-costs.html