Russian rouble, bonds slump

Russia's rouble slumped on Monday and bonds fell after the central bank suspended its one-year forex repo auctions, another signal that policymakers are concerned that a recent rouble rally has gone too far. Moscow-listed shares, meanwhile, were mixed after dropping sharply on Friday, with the rouble-denominated MICEX index recovering but the dollar-based RTS dipping.
"The key reason for the rouble weakening was the decision by the central bank to halt its forex repos. In that way, the central bank again clearly outlined that it doesn't want to see the rouble too strong," analysts at Nordea bank said in a note. The central bank said it could decide to renew the forex repos and linked their suspension to a change in market conditions. The Russian currency was also hurt by lower oil prices, a stronger dollar and the removal of support from exporters selling forex towards the end of each month for tax purposes.
Dollar demand is also on the rise because of higher external debt repayments and dividend payments in June, as well as household demand for forex ahead of summer holidays. At 1310 GMT, the rouble was 1.7 percent weaker against the dollar at 53.21 and lost 1.4 percent versus the euro to trade at 58.33. Russia's benchmark 2030 dollar Eurobond was down 0.6 cent to its lowest in a month, while the 2043 issue lost more than 2 cents, also touching a one-month low . Long-dated domestic bonds edged lower.
Brent crude oil, an important driver for all Russian assets, was 0.8 percent weaker at around $65 a barrel. Andrei Mishko from National Standard bank said he thought the rouble had further to fall, since many traders had closed their long positions in foreign currency at the end of last week, leaving room for new positioning that hurts the rouble.
"I think in the near future we'll reach 54 roubles per dollar," he said. The rouble lost over 4 percent against the dollar last week, bringing to an end a winning run that had seen it gain over 35 percent from early February to that point. Finance Minister Anton Siluanov said on Friday his ministry and the central bank have a "splendid understanding of the particular exchange rate levels which we need to orient ourselves towards".
The central bank continues to buy between $100 million and $200 million of foreign currency daily to top up its reserves, an indication it views the current rouble rate as attractive for buying forex. At 1310 GMT, Russia's RTS index was down 0.1 percent to 968 points, while the MICEX traded 1.6 percent higher at 1,635 points.