Russian rouble up from new lows, ratings downgrades weigh

Russian Rouble and US Dollar banknotes are seen in this illustration taken, February 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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MOSCOW, March 3 (Reuters) – The rouble pared some losses after slumping to new record lows against the dollar and euro on Thursday as Fitch and Moody’s downgraded Russia’s sovereign debt to “junk” status, with steps by Russian financial authorities failing to halt its slide.

The rouble was flat by the end of the day on Moscow exchange at 106.01 after hitting an all-time low of 118.35 in thin and volatile trade.

The rouble shed 1.9% of its value to 117.6 against the euro on the Moscow Exchange, having earlier breached 125 to the euro for the first time ever.

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The rouble slide continued even though the Russian central bank imposed a 30% commission on foreign currency purchases by individuals on currency exchanges – a move brokers said appeared designed to curb demand for dollars. read more

The central bank on Thursday said it would not reveal the change in its gold and forex reserves, which are frozen by Western sanctions, in the next three months.

The finance ministry said it was halting purchases of foreign currency and gold this year as part of a suspension of parts of its fiscal rule – a move also aimed at easing pressure on the rouble. read more

Russia’s financial markets have been thrown into turmoil by sanctions imposed over its invasion of Ukraine, the biggest attack on a European state since World War Two.

Russia calls its actions in Ukraine a “special operation” that it says is not designed to occupy territory but to destroy its southern neighbour’s military capabilities and capture what it regards as dangerous nationalists.

Since Russian troops entered Ukraine on Feb. 24 the rouble has lost around a third of its value against the dollar, and analysts say it will remain highly volatile.

The government has ordered Russian exporters to convert 80% of their foreign exchange revenues into roubles in another attempt to buttress the local currency, but people are still queuing up at banks to buy dollars as the rouble slumps.

Russia’s five-year credit default swaps, which investors use to hedge against risk, fell to 1,250 basis points on Thursday from their closing level of 1,321 on Wednesday, but rouble implied volatility gauges rose to fresh record highs.

Goldman Sachs noted that Russian financial conditions had tightened significantly. https://tmsnrt.rs/3C9UMcI

TRAPPED MONEY

Russian economic fundamentals, such as record-high current account surplus, low government debt and the central bank’s policy praised by international rating agencies, helped the rouble stay afloat in the past few months despite political risks.

Prior to the rouble’s slump, speculators were very bullish on the Russian currency

“There’s huge uncertainty around ongoing events, and there’s going to be a lot of volatility, volumes will be a lot lower, liquidity will be incredibly poor,” said Chris Turner, global head of markets at ING. “There’s a lot of trapped foreign money in Russia at the moment.”

On Thursday, Russia’s National Settlement Depository said coupon payouts on Russia’s OFZ government bonds which were due on Wednesday had only been made to local holders, citing a central bank order barring payments to foreigners.

Moscow is blocking foreign investors, who hold tens of billions of dollars worth of Russian stocks and bonds, from exiting those holdings. It has temporarily barred Russian companies from paying dividends to overseas shareholders, without saying how long the curbs will last. read more

Trading on the Moscow Exchange’s stock section remained largely closed on Thursday, a fourth day of restrictions ordered by the central bank.

Overnight, Fitch said US and European Union sanctions prohibiting any transactions with the Bank of Russia would have a “much larger impact on Russia’s credit fundamentals than any previous sanctions.”

Moody’s said the severity of the sanctions “have gone beyond Moody’s initial expectations and will have material credit implications.” read more

S&P lowered Russia’s rating to sub-investment grade last week. read more

Russia’s invasion of Ukraine and the sanctions imposed in response have led to dire warnings about the Russian economy, with the Institute of International Finance predicting a double-digit contraction in growth this year.

On Wednesday, index providers FTSE Russell and MSCI said they would remove Russian equities from all their indexes, after a top MSCI executive earlier this week called Russia’s stock market “uninvestable.” read more

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Reporting by Moscow bureau and Anisha Sircar in Bangalore Graphic by Sujata Rao in London Editing by Mark Potter and Bernadette Baum

Our Standards: The Thomson Reuters Trust Principles.

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