UPDATE 3-Rouble hits more than 1-month high after Russia hikes rates

(Updates prices, adds MUFG comment)

MOSCOW, April 23 (Reuters) – The rouble strengthened past 75 to a more than one-month high against the dollar on Friday, after the central bank hiked its key rate and Russia said it had started withdrawing troops from the area near the border with Ukraine.

The central bank, which had been widely expected to raise rates to rein in high inflation due to the rouble’s weakness, hiked it by a bigger-than-expected 50 basis points to 5%.

By 1402 GMT, the rouble was 0.7% stronger against the dollar at 74.88, after hitting 74.65 earlier, a level last seen on March 22, and heading well away from the 2021 low of 78.0450 touched in early April.

Against the euro, the rouble gained 0.4% at 90.30 , after touching a more than two-week high earlier.

The rouble received a boost from reports that Russia ordered its troops to end military drills in the annexed peninsula of Crimea and moved troops away from the border with Ukraine in an apparent end to a buildup of tens of thousands of soldiers that had alarmed the West.

“It creates room for the undervalued rouble to rebound as heightened geopolitical risks are pared back in the near-term,” said MUFG Bank in a note.

Jailed Russian opposition politician Alexei Navalny said he would begin gradually ending a hunger strike he had called to demand proper medical care, also easing pressure on the rouble. The West had warned of consequences if Navalny dies in jail.

“Certainly troops pulling out of Crimea as well as Navalny being treated by external doctors are welcome positives, which we saw translate into a big move higher in the rouble,” MUFG said.

The rouble is priced adequately given political risks at this point, but it is fundamentally undervalued, said Thomas Clarke, portfolio manager, William Blair’s Dynamic Allocation Strategies (DAS).

Russian stock indexes were mixed.

The dollar-denominated RTS index was up 0.5% at 1,509.7 points, a more than one-month high. The rouble-based MOEX Russian index fell 0.3% to 3,588.5 points, after hitting a record high on Thursday.

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