Russian ruble up from fresh lows, ratings downgrades weigh


Russian ruble 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 ruble pared losses after hitting new highs against the dollar and euro on Thursday as Fitch and Moody’s downgraded Russia’s sovereign debt to junk status , the measures taken by the Russian financial authorities having failed to stop its slide.

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

The ruble lost 1.9% of its value to 117.6 against the euro on the Moscow Stock Exchange, after crossing 125 against the euro for the first time.

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The ruble’s slide continued even as Russia’s central bank imposed a 30% commission on foreign currency purchases by individuals on the foreign exchange markets – a move brokers say appears designed to dampen demand of dollars. Read more

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

The finance ministry said it was ending foreign currency and gold purchases 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

Russian financial markets have been rocked by sanctions imposed following its invasion of Ukraine, the biggest attack on a European state since World War II.

Russia calls its actions in Ukraine a “special operation” which it says is not designed to occupy territory but to destroy the military capabilities of its southern neighbor and capture what it sees as dangerous nationalists.

Since Russian troops entered Ukraine on February 24, the ruble has lost about 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 earnings into rubles in another attempt to bolster the local currency, but people are still lining up at banks to buy dollars as the ruble plummets.

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 volatility gauges implicit in the ruble have reached new records.

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

TRAPPED MONEY

Russian economic fundamentals, such as record current account surplus, low public debt and central bank policy hailed by international rating agencies, have helped the ruble stay afloat in recent months despite political risks.

Before the fall of the ruble, speculators were very bullish on the Russian currency

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

On Thursday, Russia’s National Settlement Depository said coupon payments on Russian OFZ government bonds due to arrive on Wednesday had only been paid to local holders, citing a central bank order banning payments to foreigners.

Moscow is preventing foreign investors, who hold tens of billions of dollars in Russian stocks and bonds, from exiting those holdings. He temporarily banned Russian companies from paying dividends to foreign shareholders, without saying how long the restrictions will last. Read more

Trading on the shares section of the Moscow Stock Exchange remained largely closed on Thursday, a fourth day of central bank-ordered restrictions.

Overnight, Fitch said U.S. and European sanctions barring any dealings with the Bank of Russia would have “a far greater impact on Russia’s credit fundamentals than any previous sanctions.”

Moody’s said the severity of the sanctions “exceeded Moody’s initial expectations and will have significant credit implications.” Read more

S&P downgraded 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 announced they would remove Russian stocks from all their indexes, after a senior MSCI executive earlier this week called the Russian 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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