Russian rouble firms as focus turns to expected rate increase

The Russian rouble strengthened against the dollar, euro and yuan on Thursday, with market players focused on the central bank, which is expected to raise rates on Friday for the first time in more than a year.

By 1130 GMT, the rouble was 0.9% stronger against the dollar at 90.62 (RUBUTSTN=MCX) and had gained 1% to trade at 101.55 versus the euro EURRUB after clipping a near 16-month low of 102.8175 in early trade.

It had firmed 0.2% against the yuan to 12.62 CNYRUB.

The Russian currency has been gradually weakening this year as exports fall and imports recover, but pressure has intensified after an abortive armed mutiny by the Wagner mercenary group in late June. Attacks on Russian infrastructure have also dampened risk appetite.

Analysts polled by Reuters on Monday expect the Bank of Russia to raise rates by 50 basis points to 8%, with the rouble's sharp slide in recent weeks adding to already intensifying inflation pressure from labour shortages and strong consumer demand.

Inflation data this week, however, showing a jump in households' inflationary expectations for July and an acceleration in Russia's weekly consumer prices has led some to revise forecasts, anticipating an even bigger increase in rates.

"The country is on the brink of a major inflationary catastrophe," said CentroCreditBank Economist Yevgeny Suvorov. "But it can still be prevented."

Higher than expected inflation data, the rouble's collapse and a surge in consumer spending require a more decisive step than the 50-basis-point increase most have forecast, he said.

"It is not excluded that this will be up 100 basis points, and maybe even up 150."

Brent crude oil BRN1!, a global benchmark for Russia's main export, was up 0.4% at $79.78 a barrel.

Higher oil prices, an interest rate hike, easing domestic demand for foreign currency and upcoming month-end tax payments by exporters should buttress the rouble.

"The rouble will likely remain near 91 to the dollar on Thursday, but will appreciate on Friday and next week," said Sberbank analysts in a note.

Russian stock indexes were lower.

The dollar-denominated RTS index RTSI was down 0.1% to 1,014.7 points. The rouble-based MOEX Russian index IMOEX was 0.8% lower at 2,919.3 points.