Rouble sinks ahead of expected rate cut; Aeroflot shares up

© Reuters. FILE PHOTO: Russian 1000-rouble banknotes, 50 and 10 kopeck coins are seen on a table at a private company's office in Krasnoyarsk, Siberia November 6, 2014. REUTERS/Ilya Naymushin/File Photo

(Reuters) -The Russian rouble fell sharply in volatile trading on Thursday, slipping below 58 against the U.S. dollar at some point ahead of an expected rate cut by the central bank, while shares in flagship carrier Aeroflot jumped on news about EU sanctions.

The rouble has been on the rise for two weeks, supported by high oil prices, strong supply of foreign currency on the market and month-end tax payments that usually prompt export-focused companies to convert part of their FX revenues into roubles.

But the rouble lost ground on Thursday and slipped 3.3% on the day to 56.86 against the dollar as of 1227 GMT after hitting 58.89 for the first time since last Friday.

Against the euro, the rouble shed 2.7% to 57.81.

Russia's central bank is set to meet on Friday, with analysts expecting a rate cut of at least 50 basis points from 9.5%.

Strict currency restrictions and falling imports have pushed the rouble to multi-year highs despite the West's imposition of sweeping sanctions against Moscow.

But the surging rouble has caused a bout of deflation in the Russian economy and worried policymakers, who have taken steps to weaken the currency by removing some controls and slashing rates. Inflation data published on Wednesday showed another period of falling prices, with annual inflation in the Russian economy now running at 15.4%.

That is far off the worst-case predictions that price rises could top 30% this year and has given the central bank cover to reverse its emergency hike to 20% in the days after Moscow sent tens of thousands of troops into Ukraine on Feb. 24.

Analysts also pointed to thin summer-time trading for heightened volatility in Thursday's session.

Following the currency lower, Russia's stock markets also fell.

The dollar-denominated RTS index was down 4.4% at 1,136.1 points. The rouble-based MOEX Russian index was 1.1% lower at 2,052.8 points.

Aeroflot shares outperformed the market and gained more than 4% on the day to 27.70 roubles ($0.4834) after the EU clarified some earlier sanctions, allowing technical assistance to Russia for aviation goods and technology to safeguard the technical industrial standard.

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($1 = 57.3020 roubles)