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Ruble Set for 12-Week Low as Sanctions Risk Outweighs Rate Rise

The ruble retreated for a third day, heading for the weakest level since May, as concern new sanctions may target the Russian economy outweighed the impact of a central bank interest-rate increase.

The ruble fell 0.7 percent to 35.3590 per dollar as of 1:04 p.m. in Moscow, on course for the weakest close since May 6. The yield on February 2027 bonds rose six basis points to 9.30 percent, extending last week’s gain of 20 basis points.

Satellite photos that the U.S. said prove Russia shelled across the border into Ukraine are fueling bets tougher sanctions will be applied, according to Nicholas Spiro, managing director of Spiro Sovereign strategy in London. The central bank raised the one-week auction rate by 50 basis points to 8 percent on July 25 and said it’s ready to continue tightening “if high inflation risks persist.”

“The Russian market and the ruble remain very sensitive to the newsflow on sanctions,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “The EU’s promise to introduce its severest sanctions ever erases temptations to start buying Russian assets even at current low levels.”

The U.S. and the EU are mulling additional sanctions against Russia, White House spokesman Josh Earnest said on July 25. The EU is discussing banning European investors from new purchases of bonds or shares sold by Russian state-owned lenders.

The ruble fell 0.7 percent to 47.5200 against the euro and weakened the same amount versus the central bank’s target basket of dollars and euros to 40.8304.

The currency has depreciated 7 percent against the dollar this year, the worst performance among 14 developing-market currencies in Europe.

“The rate increase has stripped government bonds of their last appeal and it probably won’t do much to help the ruble either,” Miklashevsky said.

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