Ruble Falls on Luhansk Fighting After Bond Auction Canceled

The ruble fell as Ukrainian forces came closer to regaining control of the separatist stronghold of Luhansk and the Russian government canceled a bond auction. The currency pared losses after the Kremlin said the Russian and Ukrainian presidents may meet later this month.

The currency was down 0.2 percent to 36.1320 per dollar at 6 p.m. in Moscow, when the central bank ceases market operations. It earlier touched 36.2125, the lowest level in a week. The yield on 10-year ruble securities, known as OFZs, climbed three basis points to 9.31 percent as the government canceled its fifth local-currency bond auction in a row.

The ruble trimmed the second-worst drop among emerging-market currencies this month after Russia said President Vladimir Putin will take part in a meeting involving Ukraine’s Petro Poroshenko and European officials in Belarus Aug. 26. The ruble is 1.3 percent away from a record low versus the dollar.

“This is market-positive news as it gives a good opportunity for all sides to exit the entire crisis,” Vladimir Osakovskiy, chief economist for Russia and Commonwealth of Independent States at Bank of America Corp. in Moscow, said in e-mailed comments. “We also admit that success is not guaranteed yet.”

Russian retail sales rose 1.1 percent in July, staying near the slowest pace since January 2010, while investments dropped 2 percent in annual terms in the same month, the Federal Statistics Service in Moscow said today in an e-mailed statement. Economists surveyed by Bloomberg expected a 1 percent decline.

‘Weakness Intensifies’

“Overall, economic growth is very weak and the weakness intensifies,” Osakovskiy said. “On the other hand, we are still talking about weakness, rather than outright decline.”

Russia has skipped 13 debt auctions this year as Putin’s standoff with the U.S. and its allies over Ukraine and the threat of tougher sanctions triggered a selloff in the nation’s assets.

“The market is weak today and the Finance Ministry must be regarding current levels as too expensive,” Yulia Safarbakova, a fixed-income analyst at BCS Financial Group in Moscow, said in e-mailed comments.

The world’s largest energy exporter, which has $469 billion of reserves, has said it won’t sell debt if borrowing costs are too steep. The 2027 yield is 107 basis points higher than it was before Putin’s incursion into Ukraine’s Crimea peninsula started on March 1.

Aid Convoy

The ruble advanced 0.1 percent to 48.1155 per euro today and traded less than 0.1 percent weaker at 41.5246 against the central bank’s target basket of dollars and euros. Progress on having the Red Cross accompany a Russian aid convoy intended for southeast Ukraine helped the Micex Index of equities gain for an eighth day in its longest winning streak in 11 months.

Earlier, Ukrainian government forces took control of one of four districts in the pro-Russian stronghold of Luhansk and were fighting in the city center, a military spokesman said.

The ruble has fallen 1.3 percent against the dollar in August, the second-worst performance among 24 currencies of emerging countries after the Czech koruna.

Companies, including exporters that generate revenue in foreign currencies, will pay about 965 billion rubles ($27 billion) in taxes through month-end, according to median estimate of five analysts surveyed by Bloomberg, potentially boosting demand for the local currency.

To contact the reporter on this story: Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Chris Kirkham, Zahra Hankir

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