May 20, 2022

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The Russian ruble fell to new lows after the credit rating downgrade

The Russian ruble fell to new lows after the credit rating downgrade

Russian ruble and US dollar banknotes are shown in this illustration taken on February 24, 2022. REUTERS/Dado Rovich/Illustration/file photo

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MOSCOW (Reuters) – The Russian ruble fell to new record lows against the dollar and the euro on Thursday after ratings agencies Fitch and Moody’s downgraded Russia’s sovereign debt to “junk” status.

At 1012 GMT, the ruble was more than 9% weaker against the dollar at 116.8 and fell almost 8% against the euro at 125.1 on the Moscow Stock Exchange, the first time that the ruble was trading weaker than 110 against the dollar in Moscow and the dollar. For the first time it breaches 123 against the euro.

Russia’s central bank imposed a 30% commission on individual purchases of foreign currency on currency exchanges – a move brokers said appeared to be aimed at curbing demand for dollars – but did little to halt the ruble’s decline. Read more

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The Finance Ministry said it halted its purchases of foreign currency and gold this year as part of suspending parts of its financial regulations – in a move also aimed at easing pressure on the ruble. Read more

Russia’s financial markets have been turbulent due to sanctions imposed over its invasion of Ukraine, the biggest attack on a European country since World War II.

Russia describes its actions in Ukraine as a “special operation” that it says is designed not to occupy territory but to destroy its southern neighbor’s military capabilities and arrest what it considers dangerous nationalists.

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Since Russian forces entered Ukraine on February 24, the ruble has fallen nearly 30% against the dollar, and analysts said Thursday it is likely to remain highly volatile.

The government has ordered Russian exporters to convert 80% of their foreign exchange earnings into rubles in another effort to prop up the local currency, but people are still lining up at banks to buy dollars as the ruble has fallen.

“There will be a lot of uncertainty around current events, there will be a lot of volatility, volumes will be much lower, and liquidity will be incredibly thin,” said Chris Turner, head of global markets at ING. “There is a lot of foreign money trapped in Russia at the moment.”

Trading in the stock division of the Moscow Stock Exchange remained largely closed on Thursday, the fourth day of restrictions ordered by the central bank.

Overnight, Fitch said US and EU sanctions that ban any transactions with the Bank of Russia would have “a much greater impact on Russia’s credit fundamentals than any previous sanctions.”

Moody’s said the severity of the sanctions “exceeded Moody’s initial expectations and would have material credit effects.” Read more

Standard & Poor’s downgraded Russia’s rating to sub-investment grade last week. Read more

Russia’s invasion of Ukraine and 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.

On Wednesday, index providers FTSE Russell and MSCI said they would remove Russian stocks from all of their indices, after a senior MSCI executive earlier this week described the Russian stock market as “uninvestable.” Read more

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On Thursday, Russia’s national depository said that payments of Russia’s OFZ government bond coupons that were due on Wednesday were only made to their local holders, citing a central bank order blocking payments to foreigners.

For a Russian stock guide see

For Russian treasury bonds see

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(Reporting by the Moscow office and Anisha Sircar from Bangalore – Editing) by Christian Schmolinger and Mark Potter

Our criteria: Thomson Reuters Trust Principles.