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By Bloomberg

The ruble gained, trimming its first weekly decline in more than a month, and Russian bonds retreated as the central bank lowered interest rates less than some traders predicted.

The currency gained 0.4 percent to 60.9630 per dollar by 3:27 p.m. in Moscow and bond yields jumped after central bank Governor Elvira Nabiullina lowered borrowing costs by 100 basis points to 14 percent. While the move was in line with the median forecast in a Bloomberg survey of 32 analysts, more than half the currency, rates and bond traders polled by the Tradition brokerage predicted cuts of at least 150 basis points.

“Stability in the ruble could be a sign that some investors were even expecting a larger cut and they are now buying rubles,” Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm, said by e-mail.

While the ruble retreated 1 percent this week, it has shown resilience to expectations of deeper cuts, gaining 4 percent against the dollar in the past month, the best performance among 24 emerging-market currencies tracked by Bloomberg. The appreciation has given Nabiullina space to further unwind a 650 basis-point emergency rate increase to 17 percent in December as the economy heads for recession.

The yield on the government’s January 2028 OFZ bonds rose for the first time in three days, adding 15 basis points to 12.80 percent.

“The market had expected a bigger rate cut and as a result OFZ yields jumped,” Alexey Demkin, head of research at Gazprombank in Moscow, said by e-mail on Friday.

The dollar-denominated RTS Index of stocks decreased 1.4 percent to 847.20, trimming a drop of as much as 2.1 percent. Crude oil, Russia’s main export earner, fell 1.1 percent to $56.47 a barrel in London, extending its second weekly retreat.

Inflation Risk

The Bank of Russia is slowing the pace of cuts following a surprise 2 percentage-point reduction in January. Annual inflation accelerated to 16.7 percent in February, the fastest pace in 13 years. Even with price growth more than four times its mid-term target, the regulator is answering calls from business for lower rates to buoy an economy poised to shrink 4 percent this year, according to economists surveyed by Bloomberg.

“The current monetary policy and low economic activity will be conducive to the slowing of annual consumer price growth,” the central bank said in the statement. “As inflation risks abate, the Bank of Russia will be ready to continue cutting the key rate.”

Price increases in the weeks ended March 10 and March 2 fell to four-month lows of 0.2 percent.

Bigger Cuts

Forward-rate agreements compiled by Bloomberg showed expectations for a 125 basis-point rate cut in benchmark borrowing costs in the next three to six months, down from 1.58 percentage points on Thursday.

“Many brokers were expecting a bigger cut of 200 or even 300 basis points, so it is a neutral to slightly ruble-friendly decision,” Dmitri Barinov, a money manager who oversees $2.6 billion of emerging-market bonds at Union Investment Privatfonds GmbH in Frankfurt, said by e-mail on Friday. “It’s a smaller cut probably because inflation surprised on the upside lately and the central bank prefers ruble stability.”