EMERGING MARKETS-Russia's rouble loses some shine after cautious cenbank hike

September 10, 2021

* Russia hikes by 25 bps to 6.75%

* Chinese yuan logs best session in six weeks

* JPMorgan slashes Evergrande PT (Updates after Russian central bank decision)

Sept 10 (Reuters) – Russia’s rouble gave up some session gains on Friday after the central bank raised the benchmark interest rate less than expected and left the door open to more hikes if need be.

The central bank hiked the rate by 25 basis points to 6.75%. A Reuters poll had expected a 50 bps increase.

The rouble fell to 72.898 per dollar immediately after the decision before trading back around 72.74, up 0.4%.

“They took the cautious option because a lot of the inflationary risk that they’ve been talking about previously was already taken into account in previous decisions,” said Dmitry Dolgin, chief Russian economist at ING.

The bank had already hiked by 225 basis points this year with the last hike being by 100 bps.

“It seems for now inflation and GDP trajectory are moving more or less in line with the central bank’s expectations. So there is no need for taking bigger steps.”

From a real rate perspective, it is slightly negative for the rouble. But given Russia’s real rate is still attractive, the news is benign for the rouble, he said.

Other emerging market assets also held on to handsome gains made after a call between U.S. President Joe Biden and Chinese leader Xi Jinping signalled that the two nations may be looking to ease strained relations.

China’s yuan rose 0.2%, while South Africa’s rand jumped 0.9% to hit 11-week highs, on track for its third straight week of gains.

MSCI’s index of EM shares also rose about 1% but was set to end the week lower as concerns about a slowing pace of global economic recovery from the coronavirus pandemic weighed.

An explosive relationship between the two biggest economies under former U.S. President Donald Trump had roiled markets and contributed to slowing economic growth.

“Signs of willingness to nudge bilateral conversations onto a more serious path could be a net positive for regional risk assets, but spillovers to sentiments could be constrained without more discernible translation to policy changes,” said Maybank FX strategists.

In more bad news for debt-riddled property developer China Evergrande, JPMorgan slashed its price target for the company to HK$2.80 from HK$7.20 on Friday.

Overnight, Brazil’s real jumped 2.4%, making up almost all of Wednesday’s losses, after President Jair Bolsonaro stepped back from a feud with the Supreme Court.

Peru’s sol was eyed after the country’s central bank raised its benchmark interest rate by 50 basis points to 1% after Thursday’s market close but stuck to an accommodative tone.

For GRAPHIC on emerging market FX performance in 2021, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see tmsnrt.rs/2OusNdX