The Russian rouble gave up earlier gains and fell sharply on Friday, extending its biggest drop in 15 months on fears over an escalation of geopolitical tensions between Moscow and the West while government bonds and stocks suffered heavy losses. The Russian currency, bonds and stocks took a hit after Russia said Washington's rejection of Moscow's key security demands was leading talks into a dead end, Reuters reports.
By 0945 Moscow Time, the rouble was down 0.6% on the day at 76.77 against the dollar after losing more than 2% of its value on Thursday. Against the euro, the rouble lost 0.6% to stand at 87.84, away from 85.23 hit on Thursday. Yields on Russia's 10-year benchmark OFZ government bonds, which move inversely with their prices, rose to 9.46% - a level last seen in March 2016 .
"The reason for such a collapse is a unanimous selling by non-residents who cut their exposure to Russia due to increased geopolitical risks," said Evgeny Suvorov, economist at CentroCreditBank. The market was also reacting to a television interview in which Deputy Foreign Minister Sergei Ryabkov neither confirmed nor ruled out the possibility that Russia might deploy "military infrastructure" in Cuba and Venezuela.
The rouble retains fundamental support from a strong current account surplus and high interest rates at home, but Russia has been living under financial and economic sanctions since 2014 over the unification with Crimea. "We think the Russian economy is better prepared to face sanction restrictions than it has been since 2014," Morgan Stanley said in a note, adding that foreign exchange rates and investor confidence remain a risk.
The rouble has been under pressure since October as Western countries have expressed concerns about Russia's military build-up near Ukraine. Moscow has said it can move its troops within its own territory as it deems necessary.
Russian stock indexes continued falling after a short-lived recovery. "Foreign selling resumed after London opened ... The market is driven solely by geopolitical pressure and talks between Russia and its western partners," said Karen Isadzhanyan, chief trader at Sinara Investment Bank.
The dollar-denominated RTS index (.IRTS) fell 2.3% to 1,481.9 points, having touched its lowest since April at 1,476.55 points. The rouble-based MOEX Russian index (.IMOEX) was down 1.6% at 3,614.1 points. Shares in largest lender Sberbank (SBER.MM) underperformed the market and fell 4.4% to 260.6 roubles ($3.41), their lowest since early 2021.
