September 14, 2018 / 7:20 AM / 6 days ago

Russian rouble steady, eyes on central bank rate move

MOSCOW, Sept 14 (Reuters) - The Russian rouble was steady in early trade on Friday ahead of the central bank’s rate-setting meeting as the market digested threats of more U.S. sanctions against Moscow.

U.S. lawmakers on Thursday said Washington should push back harder against Russia over allegations it sent assassins with a chemical weapon to kill a former spy in Britain.

As of 0705 GMT, the rouble firmed 0.1 percent to 68.21 versus the dollar, moving slightly away from the weakest level since March 2016 of 70.60 it touched earlier this week.

Against the euro, the rouble was steady at 79.82 , hovering at a distance from levels around 73 seen before the latest sell-off wave that gained momentum in early August.

The central bank’s board meeting is in focus as, after a week of silence, the bank is finally expected to address recent turmoil on financial markets, including a rapid drop in the rouble that poses strong upside risks for inflation.

A Reuters poll has showed the market expects the central bank to hold the key rate at 7.25 percent but its recent rhetoric and the weak rouble could have opened the door for a rate hike.

“In Russia, we see rates on hold today at 7.25 percent with 70 percent probability and a 30 percent chance of a hike,” Morgan Stanley said in a note, articulating expectations of the broader market.

“Given uncertainty about the strength of FX pass-through, inflation and the U.S. sanctions outlook, we expect the CBR to keep its hawkish tone, leaving its options for a hike open,” Morgan Stanley said.

Higher rates, in theory, should support the rouble by making borrowing more expensive. This strategy worked well in late 2014 when the central bank stabilised the tanking rouble by unexpectedly raising the key rate to 17 percent.

The central bank’s rate decision is due at 1030 GMT and its Governor Elvira Nabiullina will hold a media-briefing at 1200 GMT.

On the stock market side, the dollar-denominated RTS index was up 0.4 percent to 1,088.4 points, while its rouble-based peer MOEX was little changed on the day at 2,357.1 points.

For Russian equities guide see

For Russian treasury bonds see (Reporting by Andrey Ostroukh)

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