The ruble weakened the most in two weeks and government bonds fell as Russia cut gas supplies to Ukraine after price negotiations failed. The central bank left the benchmark interest rate unchanged.
The ruble depreciated 0.5 percent to 40.1099 against Bank Rossii’s target basket of dollars and euros by 2:30 p.m. in Moscow, the most since May 30 on a closing basis. The yield on local-currency debt maturing February 2027 rose 17 basis points to 8.73 percent.
Russia is only pumping enough gas into Ukraine’s pipeline network to meet demand from European customers, said Andriy Kobolyev, chief executive officer of state gas company Naftogaz. Russian gas exporter OAO Gazprom demanded $1.95 billion in partial debt payments by this morning to maintain supplies. Bank Rossii kept its main rate unchanged at 7.5 percent and said it may continue tightening monetary policy “if existing inflation risks materialize.”
“The central bank didn’t move the needle with this decision as geopolitical risks currently outweigh” everything else, Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments.
The ruble lost 0.5 percent against the euro to 46.83 and 0.4 percent to 34.6050 per dollar.
All 27 economists surveyed by Bloomberg News expected the central bank to keep benchmark rate on hold after raising it 200 basis points since February. Policy makers are seeking to lower inflation to 4 percent in the medium term, though price growth accelerated to 7.6 percent in the week ended June 9.
In Ukraine, government forces and rebels claiming allegiance to Russia continued to clash in the east of the country. Protesters in Kiev attacked the Russian embassy over the weekend, breaking windows with stones and overturning and torching at least three embassy cars.
“The ruble is the most liquid instrument in our markets, through which you can play every movement in the risk premium,” Dmitry Dorofeev, money manager at BCS Financial Group in Moscow, said in e-mailed comments.