May 16, 2022

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Russian ruble rise from new lows, credit rating downgrades

Russian ruble rise from new lows, credit rating downgrades

Russian ruble and US dollar banknotes are shown in this illustration taken on February 24, 2022. REUTERS/Dado Rovich/Illustration/file photo

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MOSCOW (Reuters) – The ruble pared some of its losses after hitting new records against the dollar and the euro on Thursday as Fitch and Moody’s downgraded Russia’s sovereign debt rating to “junk” and steps by Russia’s financial authorities failed to stop it. slipping.

The ruble settled at the end of the day on the Moscow Stock Exchange at 106.01 after hitting an all-time low of 118.35 in weak and volatile trading.

The ruble fell 1.9% of its value to 117.6 against the euro on the Moscow Stock Exchange, after earlier breaking 125 against the euro for the first time ever.

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The ruble’s slide continued even though Russia’s central bank imposed a 30% commission on individual purchases of foreign currency on currency exchanges – a move brokers said appeared to be aimed at curbing demand for dollars. Read more

The central bank said Thursday that it will not disclose the change in its gold and foreign exchange reserves, which have been frozen due to Western sanctions, in the next three months.

The Finance Ministry said it halted its purchases of foreign currency and gold this year as part of suspending parts of its financial regulations – in a move also aimed at easing pressure on the ruble. Read more

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Russia’s financial markets have been turbulent due to sanctions imposed over its invasion of Ukraine, the biggest attack on a European country since World War II.

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

Since Russian forces 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 effort to prop up the local currency, but people are still lining up at banks to buy dollars as the ruble has fallen.

Russia’s five-year credit default swaps, which investors use to hedge risk, fell to 1,250 basis points on Thursday from its closing level of 1,321 on Wednesday, but the ruble’s implied volatility measures rose to new highs.

Goldman Sachs noted that Russia’s financial conditions have become significantly tighter.

trapped money

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

Before the ruble fell, speculators were very optimistic about the Russian currency

“There will be a lot of uncertainty around current events, there will be a lot of volatility, volumes will be much lower, and liquidity will be incredibly thin,” said Chris Turner, head of global markets at ING. “There is a lot of foreign money trapped in Russia at the moment.”

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On Thursday, Russia’s national depository said that payments of Russia’s OFZ government bond coupons that were due on Wednesday were only made to their local holders, citing an order from the central bank blocking payments to foreigners.

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

Trading in the stock division of the Moscow Stock Exchange remained largely closed on Thursday, the fourth day of restrictions ordered by the central bank.

Overnight, Fitch said US and EU sanctions that ban any transactions with the Bank of Russia would have “a much 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 would have material credit effects.” Read more

Standard & Poor’s downgraded Russia’s rating to sub-investment grade last week. Read more

Russia’s invasion of Ukraine and 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 stocks from all of their indices, after a senior MSCI executive earlier this week described the Russian stock market as “uninvestable.” Read more

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

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