Russian c.bank halts currency purchases as Ukraine fears hammer rouble, stocks and bonds

  • Russian assets hammered by geopolitical concerns
  • The ruble reaches 79.5 against the dollar, down more than 2.6%
  • Kremlin blames volatility on Western ‘hysteria’
  • MOEX stock index drops about 6% to multi-month low

MOSCOW, Jan 24 (Reuters) – The ruble plunged to its weakest level against the dollar in more than 14 months and Russian stocks hit new lows on Monday as concerns over rising tensions between Moscow and the West over Ukraine fueled a large sell-off of Russian stocks. assets.

The central bank’s announcement that it would stop buying foreign currency domestically from Monday as part of its fiscal rule gave the ruble a brief respite before losses resumed.

Volatility has plagued Russian markets in recent weeks amid Western fears that Russia is set to invade its neighbor, which Moscow has repeatedly denied. If Russia makes an incursion, the West has threatened sanctions with far-reaching economic effects. Read more

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NATO said it was putting forces on standby and bolstering Eastern Europe with more ships and fighter jets, in what Russia denounced as escalating tensions. Read more

At 1512 GMT, the ruble was 2.6% weaker against the dollar at 79.47, having fallen to 79.50, its lowest since early November 2020. Against the euro it lost 2.1 % at 89.74, its lowest since July 20.

US investment bank JPMorgan closed all of its remaining long positions in the ruble at a loss, citing prohibitive geopolitical uncertainty.

“We cannot rule out negative scenarios with high confidence. As a result, our existing long recommendations have become untenable,” the bank’s analysts said in a research note.

War concerns for the Russian ruble

Stocks were falling, hitting their lowest level since the end of 2020. Russia’s dollar-denominated RTS index (.IRTS) fell 8.9% to 1,276.8 points. Russia’s rouble-based MOEX index (.IMOEX) was down 6.4% at 3,218.6 points. Shares of gas giant Gazprom and state lender VTB (VTBR.MM) fell nearly 7%.

“For the local market, expect risk aversion to continue, with simmering tensions and few face-saving opportunities on either side,” BCS Global Markets said in a note. .

“Future events are up for debate, uncertainty will reign for now.”

Yields on Russia’s 10-year OFZ bonds hit 9.76%, their highest level since early 2016. Yields move inversely to prices.

Kremlin spokesman Dmitry Peskov blamed the market rout on Western hysteria and said markets were hurting globally.

“Such periods of decline are always followed by periods of growth,” Peskov told reporters. “The sooner our opponents stop their hysterical actions, the sooner this pessimistic mood will fade.”

GEOPOLITICAL PRESSURE

Denmark said the European Union was ready to impose “never seen before” economic sanctions if Russia attacked Ukraine, while Ireland said Moscow had notified it of Russian naval exercises in the waters. international organizations in the Irish Sea, adding that they were not welcome.

“It looks like both sides are increasing the pressure,” said abrdn EM portfolio manager Viktor Szabo.

The tensions pushed Russian 5-year credit default swaps to their highest since March 2020 at 234 basis points, and the ruble’s volatility gauge to its highest since November 2020.

Dollar-denominated Russian and Ukrainian sovereign bonds extended their slide and Russian ETFs were hammered.

Russia’s central bank said it would halt currency purchases on Monday, in a bid to dampen market volatility. [nS8N2SV0A1]

Under a fiscal rule adopted in 2017 to bolster the National Wealth Fund, Russia buys foreign currency when oil prices are high and sells when prices fall below $44 a barrel, protecting the ruble from fluctuations in oil prices.

Russian officials say the country’s finances are sound and economic fundamentals are solid. Read more

Russia is also grappling with an increase in COVID-19 cases, which hit a record 65,109 on Monday, with the Omicron variant spreading across the country. Read more

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Reporting by Alexander Marrow and Katya Golubkova Additional reporting by Elena Fabrichnaya and Dmitry Antonov in Moscow and Marc Jones in London; Editing by David Goodman, Toby Chopra and Tomasz Janowski

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