Russian rouble drops on sanctions threat, risk aversion post-Fed

MOSCOW: Russia's rouble fell around 2 percent against the dollar and the euro on Thursday, hurt by the threat of new European Union sanctions over the Ukraine crisis, the end of the tax period and a broad-based aversion to riskier assets on global markets.

At 1215 GMT, the rouble was 1.9 percent weaker at 69.31 roubles to the dollar and 2 percent lower at 78.40 against the euro.

Stocks were mixed, with the dollar-based RTS index down 0.9 percent to 758 points and the rouble-denominated MICEX up 1.3 percent to 1,668 points, mainly reflecting moves in the Russian currency.

European Union foreign ministers on Thursday were expected to ask the European Commission to prepare a new round of sanctions to punish Moscow for its role in eastern Ukraine, where fighting has escalated recently.

The sanctions may include further capital markets restrictions, making it harder for Russian companies to refinance themselves and possibly affecting Russian sovereign bonds, EU officials said on Wednesday.

"There are few positives for the rouble, so it'll be difficult for it to get out of a range of 62-70 roubles per dollar," analysts at Nordea bank said in a note.

Emerging markets in general weakened, with most currencies falling after the U.S. Federal Reserve's post-meeting statement late on Wednesday indicated it was on track to raise interest rates this year, boosting the dollar.

The rouble has weakened around 7 percent against the dollar this week, its slide gathering pace after Standard & Poor's ratings agency cut Russia's sovereign credit rating to below investment grade for the first time in a decade.

The falling price of oil, Russia's major export, has also put pressure on the rouble. Brent crude futures remain near six-year lows at around $49 a barrel.

A further negative has been the end of the monthly tax period when Russian exporters convert their foreign currency earnings into roubles to pay their tax obligations.

Investors in Russian assets will now turn their attention to the central bank's regular monetary policy meeting on Friday. It is expected to leave its key interest rate on hold at 17 percent .

"While the rouble remains under pressure, they won't cut their key rate," said Alexey Pogorelov, an economist for Russia at Credit Suisse. "The economic situation is such that a rate cut is needed, but then the rouble's weakening could speed up."