The rouble set fresh three-month peaks against the euro-dollar basket on Friday, bolstered by the central bank delivering on market expectations of a deposit rate hike and thus raising the Russian currency's yield appeal. The central bank raised deposit rates by 25 basis points, kicking off a monetary tightening campaign in response to rising inflation pressures.
"The market had started to price in a possible interest rate hike well in advance. The rouble started to appreciate after (central bank governor Sergei) Ignatyev's speech in early December," said Viktor Kholoshnoy, a dealer at Gazprombank.
Ahead of the decision, the rouble firmed as far as 34.66 against the euro-dollar basket, its strongest since mid-September, with gains accelerating after the break through key technical resistance at the 200-day moving average. The Russian unit closed at 34.73 versus the basket, 1.3 percent stronger for the week and on track for its best monthly performance of the year.
Expectations of a rate hike rose this week after data showed that since the start of 2010, consumer prices have risen 8.4 percent, compared with the latest official forecast for full year CPI growth of 8.5 percent. Analysts expect more rate hikes to follow, which could further support the rouble in 2011. "It will stimulate the inflow of capital," said Maria Pomelnikova, an economist at Trust Bank.
The rouble added 15 kopecks to 30.46 against the dollar and 5 kopecks to 39.97 per euro. Rapid moves in the rouble look unlikely in coming days as global markets closed for the Christmas holidays. But Russia's year-end tax payments may give the rouble further support as exporters companies convert dollar and euro revenues to cover their tax bills. The mineral extraction tax is due by December 27 and the income tax should be paid by December 28.