As Ukraine fears the beating of the ruble, stocks and bonds, the Russian c.bank has stopped foreign exchange purchases

As Ukraine fears the beating of the ruble, stocks and bonds, the Russian c.bank has stopped foreign exchange purchases

Concerns about escalating tensions between Moscow and the West over Ukraine sparked a broad sell-off of Russian assets on Monday, sending the rouble to fresh lows versus the dollar for the first time in more than 14 months. The rouble got a small reprieve after the central bank announced it will stop buying foreign exchange on the domestic market as part of its fiscal regulation on Monday. Russian markets have been beset by volatility in recent weeks, owing to Western suspicions that Russia is planning an invasion of its neighbour, which Moscow has frequently rejected. If Russia invades, the West has promised sanctions with severe economic consequences.

Stocks were tumbling, hitting their lowest since late 2020. Russia’s dollar-denominated RTS index was down 8.9% at 1,276.8 points. The rouble-based MOEX Russian index was 6.4% down at 3,218.6 points. Shares in gas giant Gazprom and state lender VTB were down almost 7%. “For the local market, expect risk-off to continue, with tensions smouldering and little opportunity to save face on either side,” BCS Global Markets said in a note. “Future events are up for debate, uncertainty will rule for now.” Russia’s 10-year OFZ bond yields hit 9.76%, their highest since early 2016. Yields move inversely to prices.

NATO said it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets, in what Russia denounced as an escalation of tensions. By 1512 GMT the rouble was 2.6% weaker against the dollar at 79.47, having earlier sunk to 79.50, its weakest since early November 2020. Against the euro, it lost 2.1% to 89.74, its weakest since July 20. U.S. investment bank JPMorgan closed all its remaining long positions in the rouble at a loss, citing prohibitively high geopolitical uncertainty. “We cannot with high confidence dismiss negative scenarios. Hence, our existing long recommendations have become untenable,” the bank’s analysts said in a research note.

Kremlin spokesperson Dmitry Peskov blamed the market rout on Western hysteria and said markets were suffering globally. “Such periods of decline are always followed by periods of growth,” Peskov told reporters. “The sooner our opponents stop their hysterical actions, the quicker this pessimistic mood will disappear.” 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 international waters in the Irish Sea, adding that they were unwelcome.

Under a fiscal rule adopted in 2017 to strengthen the National Wealth Fund, Russia buys foreign currency when oil prices are high and sells when prices go below $44 per barrel, shielding the rouble from oil price swings. Russian officials say the country’s finances are healthy and economic fundamentals are strong. Russia is also grappling with rising COVID-19 cases, which hit a record high of 65,109 on Monday, with the Omicron variant spreading across the country.

“It looks like both sides are dialling up the pressure,” said abrdn EM portfolio manager Viktor Szabo. The tensions drove Russian 5-year credit default swaps to their highest since March 2020 at 234 basis points , and the rouble’s volatility gauge to its highest since November 2020. Russian and Ukrainian dollar-denominated sovereign bonds extended falls and Russian ETFs were hammered. Russia’s central bank said it would stop forex purchases on Monday, in an attempt to ease market volatility.

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