October 25, 2019 / 11:29 AM / in 4 months

UPDATE 1-Rouble firms after c.bank delivers sharpest rate cut since 2017

(Adds reaction to c.bank rate decision, analyst comment)

MOSCOW, Oct 25 (Reuters) - The Russian rouble firmed slightly on Friday after the central bank cut its key interest rate to 6.5%, lowering the cost of borrowing for the fourth time so far this year.

The central bank cut the key rate by 50 basis points, exceeding expectations in a Reuters poll that showed earlier this month that the market had on average expected a 25 basis point cut.

Following the rate cut announcement at 1030 GMT, the rouble was 0.3% stronger against the dollar at 63.91 and was up 0.06% on the day at 71.08 versus the euro.

The central bank had been widely expected to cut its key rate from 7%, amid slowing inflation, its key area of responsibility. It hinted on Friday that another rate cut was possible at the next rate-setting meeting on Dec. 13.

Vladimir Miklashevsky, senior economist and trading desk strategist at Danske Bank, said the central bank’s flexibility should help the Russian economy to start accelerating in 2020-21.

“Markets should now accept the fact that the Central Bank of Russia is becoming more flexible, retaining its consistency and keeping its focus on external factors,” Miklashevsky said.

“Flexibility will bring even more power to the Central Bank of Russia’s monetary policy.”

The rate cut had a positive impact on Russian OFZ treasury bonds. Yields on 10-year OFZ bonds, which move inversely to their prices, fell to 6.51% after the announcement from 6.55% earlier on Friday, moving towards a six-year low of 6.44% hit the day before.

Russian stock indexes were lower. The dollar-denominated RTS index was down 0.3% on the day to 1,409.4 points. The rouble-based MOEX Russian index was 0.6% lower at 2,861.5 points.

For Russian equities guide see

For Russian treasury bonds see (Reporting by Andrey Ostroukh Additional reporting by Alexander Marrow Editing by Christopher Cushing and Frances Kerry)

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