The Russian rouble jumped on Wednesday to around a two-year high against both the dollar and the euro, retaining the support of hefty capital controls as the European Union proposed a new package of sanctions against Russia over events in Ukraine.
European Commission President Ursula von der Leyen proposed a phased oil embargo on Russia, as well as sanctioning its top bank and banning its broadcasters from European airwaves, in a bid to deepen Moscow’s isolation.
By 1425 GMT, the rouble was 3.6% stronger against the dollarat 68.43, after earlier touching 68.00, its strongest since June 2020.
It had gained 3.7% to trade at 72.02 versus the euro, earlier hitting 71.83, its strongest point since February 2020.
Movements on Russian markets are affected by the roublebeing propped up by capital controls, while stocks are tradingwith a ban on short selling and foreign players barred fromditching shares in Russian companies without permission.
Market participants question if the current rate issustainable in light of the curbs, after the rouble sank to arecord low in early March as Western nations pounded Moscow and its financial system with unprecedented sanctions.
Russian markets were reopening after the first of twoconsecutive long weekends to mark the May holidays.
Russian rouble firms past 74 vs dollar, stocks slip to near 2-month low
“With many investors still on vacation, trading volumesshould be subdued this week,” Sberbank CIB analysts said in anote.
Controls trump rate cut
Investors were treated to a busy final day of trading beforethe holidays on Friday, as the central bank slashed rates by 300 basis points to 14% and the finance ministry said it had managed to pay interest on dollar Eurobonds, an apparent late swerve to avoid default after previously vowing to pay only in roubles.
Lower rates support the economy through cheaper lending but can also fan inflation and make the rouble more vulnerable to external shocks.
Even with expectations for rates to fall further, the impacton the rouble is unlikely to be noticeable for now, said EvgenyZhornist, portfolio manager at Alfa Capital.
“The trade balance surplus along with high global commodityprices are providing a steady inflow of foreign currency intothe country, while forex restrictions and the freezing offoreign exchange reserves are making outflows more difficult,” he said, all of which means the rouble may strengthen further.
Russian stock indexes were mixed. The dollar-denominated RTS index was up 1.8% to 1,100.7 points.
The rouble-based MOEX Russian index was 2.3% lower at 2,389.2 points.
Shares in Russia’s largest lender Sberbank underperformed, falling 4.4% after the European Commission proposed removing it and two other banks from the international SWIFT transaction and messaging system.
Veles Capital analysts said the sanctions on banks wereunpleasant for the sector, but not critical.
Flag carrier Aeroflot was an outlier, climbing 0.7% on the day, after the airline’s board recommended increasing the company’s share capital.