April 26, 2019 / 1:07 PM / 3 months ago

UPDATE 1-Russian rouble edges lower after c.bank holds key rate

(Updates with c.bank rate decision)

MOSCOW, April 26 (Reuters) - The Russian rouble declined against the dollar on Friday after the central bank held the key interest rate and laid the foundations to lower it later this year.

At 1200 GMT, the rouble was slightly down against the dollar at 64.76, having moved away from its weakest level since early April of 64.98 it hit the previous day. Versus the euro, the rouble lost 0.2 percent to 72.12.

The central bank said it could consider cutting the key rate from 7.75 percent as early as in June as inflation had peaked and was on poised to slow to its 4 percent target in the first half of 2020.

The decision to hold rates had little immediate impact on the Russian currency, but the central bank’s signal that it could lower rates in the future can indirectly support the rouble by stimulating demand for government bonds.

In recent months expectations that Russia may cut rates later this year have fuelled demand for OFZ government bonds because investors are eager to purchase the papers before their prices increase proportionally to a potential future cut.

“The confirmed expectations of an early rate cut will continue to support demand for OFZ bonds, which will contribute to a more favourable rouble dynamic than that of its emerging market peers,” said Tatiana Evdokimova, chief economist at Nordea Bank in Moscow.

Month-end taxes, which usually prompt export-focused companies to convert their foreign currency to meet local duties and thereby support the rouble, were paid earlier this week and no longer have an effect on the currency.

Oil prices, one of the main drivers for Russian markets, declined slightly from 2019 highs on Friday amid efforts to resume Russian oil flows that were interrupted by contamination.

The dollar-denominated RTS index was down 0.3 percent to 1,241.71 points. The rouble-based MOEX Russian index was 0.3 percent lower at 2,553.33 points.

For Russian equities guide see

For Russian treasury bonds see

Reporting by Gabrielle Tétrault-Farber Editing by Raissa Kasolowsky

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