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Rouble Weakens as Russia Eases Capital Controls

On Tuesday, the Russian rouble weakened, giving away the gains it had made, with the finance ministry easing capital controls slightly. The Russian currency moved away from 61 against the US dollar, as investors turned their focus on the central bank, as it is expected to reduce the interest rate later this week. The Russian finance ministry further stated that companies focused on exports could now transfer foreign currency to their accounts overseas, as long as they fulfill certain conditions. Their goal is to assist the country in paying for imports and to prevent further strengthening of the rouble.

There was a 0.2% decline in the roubleby 1503 GMT against the greenback, as it slid to 61.15. This saw the currency lose more than 1% of the gains it had made in intra-day trading. In the last couple of days, the rouble has managed to stabilize within the range of 60.0 to 62.5, even though it saw some wild swings in the previous month. As far as the euro is concerned, the rouble’s price fell by almost 0.5% to trade at 65.40. Russia had imposed some capital controls for supporting the currency on the Moscow exchange.

This was done soon after it had sent tens of thousands of troops for launching what it calls a ‘military operation’ in Ukraine and was aimed at protecting the country’s financial system. However, the rouble has remained quite weak at banks. The second-largest Russian lender, VTB had offering to sell cash euros to people for 87 roubles and dollars for 82 roubles. The primary focus are the sanctions imposed by Western nations and the US against Russia and the country’s sovereign debt. Last week, the sixth package of sanctions was announced by the European Union, which includes banning all imports of Russian crude oil products in 6 to 8 months.

Moreover, the EU also added the National Settlement Depository (NSD) to the list of entities on its sanctions list. This prompted it to announce that no transactions could be conducted in euros, which means it cannot be used by the country to pay for its Eurobonds. The 10-year OFZ treasury bonds saw their yields decline to 8.88% in the debt market locally, which makes it the lowest since January 13th. The market is now waiting for the central bank’s decision about rate that will be announced on Friday.

Most market analysts expect the Russian central bank to cut down the interest rate to 10%, which would make it a reduction of 100-basis points. This is likely because it wants to make lending affordable, as inflation has hit a pause and consumer demand has slowed down. There was a gain in the country’s stock indexes after they recovered from some losses early on. There was a 0.2% and 0.5% in the RTS and MOEX indexes, with the latter previously reaching its lowest level since May 24th. There was also a 4.4% increase in Aeroflot shares, after it announced raising funds of 185.2 billion roubles via a share issue.

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