Ruble extends losses after rates slashed; Eurobonds in focus

A picture illustration shows Russian ruble banknotes of various denominations on a table in Warsaw, Poland, January 22, 2016. REUTERS / Kacper Pempel / File Photo

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May 27 (Reuters) – The Russian ruble extended its losses on Friday after plunging in the previous session as the country’s central bank slashed interest rates, signaling more cuts, and the prospect of easing capital controls and a possible sovereign default hammered the currency.

The ruble slumped around 10% to the dollar and euro on Thursday after the central bank lowered its key rate to 11%, the third 300-basis-point cut in a row, as inflation slows from more than 20-year highs. read more

As the ruble continued swinging this way and that on Friday, Prime Minister Mikhail Mishustin said the government wanted to avoid currency volatility, a sign that Moscow is not entirely comfortable with the ruble’s seemingly uncontrollable moves.

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By 1316 GMT, the ruble was 1.3% weaker against the dollar at 66.09, swinging during the session from 64.89 to a more than two-week low of 67.4950. On Wednesday, the ruble had hit its strongest level since February 2018 of 55.80 against the greenback.

Versus the euro, the ruble lost 1.4% to trade at 68.93, sliding further away from the seven-year high of 57.10 hit on Wednesday.

Propped up by capital controls, the ruble had artificially risen to become the world’s best-performing currency so far this year until this week’s slide. New gas payment terms requiring conversion of foreign currency into rubles and a fall in imports have also helped.

But it has now lost the support of the month-end tax period that usually sees export-focused companies convert foreign currency into rubles to pay local liabilities.

ROUBLE BALANCE

Economy Minister Maxim Reshetnikov said excessive ruble appreciation posed deflation risks, adding to his comments on Thursday that the currency’s strength, which has raised concerns about the negative impact on Russia’s budget revenue from exports, was making Russian goods uncompetitive abroad.

“The ruble has to be within some reasonable limits,” he said.

Reshetnikov, who also praised the central bank’s rate cut hoping it will spur lending activity, has said he expects the mandatory proportion of foreign currency revenue that exporters must convert into rubles to be cut further from 50%.

Market eyes are focused on Russia’s National Settlement Depository (NSD), which has promised to make interest payments on Friday worth $ 71.25 million and 26.5 million euros ($ 28.5 million) on two Eurobonds ,. read more

That is in spite of Washington deciding against extending a key license that had allowed Moscow to keep paying bondholders despite the sanctions imposed over its actions in Ukraine, putting Russia on the cusp of a unique kind of debt crisis. read more

Russian stock indices were falling.

The dollar-denominated RTS index (.IRTS) was down 2.3% at 1,153.9 points. The ruble-based MOEX Russian index (.IMOEX) was 0.2% lower at 2,406.5 points.

($ 1 = 0.9305 euros)

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Reporting by Reuters; Editing by Nick Macfie and Maju Samuel

Our Standards: The Thomson Reuters Trust Principles.

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