Ruble jumps to more than 2 years against dollar, euro as EU tightens sanctions By Reuters

© Reuters. FILE PHOTO: Russian 100-ruble banknotes are placed on a cashier’s desk at a supermarket in the Siberian town of Tara in the Omsk region, Russia December 14, 2021. REUTERS/Alexey Malgavko

(Reuters) – The Russian ruble jumped to a more than two-year high against the dollar and euro on Wednesday, retaining support from heavy capital controls as the European Union proposed a new round of sanctions against Russia following the events in Ukraine.

Movements in Russian markets are affected by the ruble backed by capital controls, while stocks trade with a ban on short selling and foreign players cannot dump shares of Russian companies without permission.

European Commission President Ursula von der Leyen has proposed a gradual oil embargo on Russia, along with sanctioning its main bank and banning its broadcasters from European airwaves, in a bid to deepen isolation from Moscow.

But as markets swung back into action for a few days amid Russia’s long May holiday and there were no concrete signs that the central bank would soon ease controls, exporters were actively selling foreign currencies, fearing that further strengthening of the ruble will eat away at their holdings.

The ruble closed up 6.6% against the dollar at 66.30, its strongest since March 2020.

It had gained 5.8% to trade at 70.44 against the euro, earlier touching 69.80, its strongest position since February 2020.

Market participants are questioning whether the current rate is sustainable in light of the restrictions, after the ruble fell to a record low in early March as Western nations hit Moscow and its financial system with unprecedented sanctions.

CONTROL BENEFIT RATE REDUCTION

Investors were treated to a busy final day of trading ahead of the holiday on Friday, as the central bank cut rates by 300 basis points to 14% and the finance ministry said it had managed to pay interest on dollar Eurobonds, an apparent late diversion to avoid default after it had previously pledged to pay only in rubles.

Lower rates support the economy through cheaper loans, but can also stoke inflation and make the ruble more vulnerable to external shocks.

Although further rate cuts are expected, the impact on the ruble should not be noticeable for now, said Evgeny Zhornist, portfolio manager at Alfa Capital.

“The trade balance surplus along with high global commodity prices provide a steady inflow of foreign currency into the country, while foreign exchange restrictions and frozen foreign exchange reserves make outflows more difficult,” he said. he said, meaning the ruble could strengthen further.

But the currency’s current dynamics make the easing of currency controls, which the central bank addressed last Friday, more likely, said Viktor Grigoriev of Bank St Petersburg.

Russian stock indexes were mixed.

The dollar-denominated RTS index gained 3% to 1,114.1 points. Russia’s rouble-based MOEX index fell 2.9% to 2,373.2 points.

Shares of Russia’s biggest lender, Sberbank, underperformed, falling 4.4% after the European Commission proposed removing it and two other banks from the SWIFT international transaction and messaging system.

Veles Capital analysts said the sanctions on banks were unpleasant for the sector, but not critical.

Flag carrier Aeroflot was an outlier, climbing 0.2% on the day after the airline’s board recommended raising the company’s share capital.

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