MOSCOW: The Russian rouble slumped to new record lows against the dollar and euro on Thursday after Fitch and Moody’s downgraded Russia’s sovereign debt to “junk” status, with steps by the central bank and finance ministry failing to halt its slide.
At 1305 GMT, the rouble was more than 9% weaker against the dollar at 117.4 and down over 7% against the euro at 125.1 on the Moscow Exchange, marking the first time the rouble has traded weaker than 110 to the dollar in Moscow and the first time it has breached 123 to the euro.
The Russian central bank imposed a 30% commission on foreign currency purchases by individuals on currency exchanges - a move brokers said appeared designed to curb demand for dollars - but there was little immediate impact.
The central bank on Thursday said it would not reveal the change in its gold and forex reserves, which are frozen by Western sanctions, in the next three months.
The finance ministry said it was halting purchases of foreign currency and gold this year as part of a suspension of parts of its fiscal rule - a move also aimed at easing pressure on the rouble.
Russia’s financial markets have been thrown into turmoil by sanctions imposed over its invasion of Ukraine, the biggest attack on a European state since World War Two.
Russia calls its actions in Ukraine a “special operation” that it says is not designed to occupy territory but to destroy its southern neighbour’s military capabilities and capture what it regards as dangerous nationalists.
Since Russian troops entered Ukraine on Feb. 24 the rouble is down close to 30% against the dollar, and analysts say it will probably remain highly volatile.
The government has ordered Russian exporters to convert 80% of their foreign exchange revenues into roubles in another attempt to buttress the local currency, but people are still queuing up at banks to buy dollars as the rouble slumps.
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 rouble implied volatility gauges rose to fresh record highs.
Goldman Sachs noted that Russian financial conditions had tightened significantly.
TRAPPED MONEY
“There’s huge uncertainty around ongoing events, and there’s going to be a lot of volatility, volumes will be a lot lower, liquidity will be incredibly poor,” said Chris Turner, global head of markets at ING. “There’s a lot of trapped foreign money in Russia at the moment.”
On Thursday, Russia’s National Settlement Depository said coupon payouts on Russia’s OFZ government bonds which were due on Wednesday had only been made to local holders, citing a central bank order barring payments to foreigners. Moscow is blocking foreign investors, who hold tens of billions of dollars worth of Russian stocks and bonds, from exiting those holdings. It has temporarily barred Russian companies from paying dividends to overseas shareholders, without saying how long the curbs will last.
Trading on the Moscow Exchange’s stock section remained largely closed on Thursday, a fourth day of restrictions ordered by the central bank.
Overnight, Fitch said US and European Union sanctions prohibiting any transactions with the Bank of Russia would have a “much larger impact on Russia’s credit fundamentals than any previous sanctions.”
Moody’s said the severity of the sanctions “have gone beyond Moody’s initial expectations and will have material credit implications.”
S&P lowered Russia’s rating to sub-investment grade last week.
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.