The ruble weakened in thin holiday trading as elections organized by pro-Russian rebels in eastern Ukraine threatened to undermine a fragile peace in the region.
The currency slid 0.8 percent to 48.3501 versus the central bank’s dollar-euro basket by 6:00 p.m. in Moscow, when the central bank stops market operations, after dropping 7.7 percent last month. Volume in dollar-ruble trade via the Moscow Exchange dropped 96 percent from Oct. 31 as Russia has public holidays today and tomorrow.
The ruble has been plunging as capital flees the country, even after the central bank increased interest rates, amid a standoff with the U.S. and its allies over President Vladimir Putin’s actions in Ukraine. Yesterday’s ballots in the separatist-held territories of Donetsk and Luhansk, backed by Russia and defied by governments from Kiev to Washington, may lead to talk of further European Union and U.S. sanctions, according to Commerzbank AG.
The threat of additional sanctions on Russia is “negative for the ruble,” Simon Quijano-Evans, a London-based analyst at Commerzbank, wrote in an e-mailed report today.
It may be necessary to consider intensifying the sanctions “if the situation worsens” after the “illegitimate” elections, German Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, told reporters in Berlin today. Andreas Schockenhoff, a lawmaker in Merkel’s Christian Democratic Union, said the EU must add the names of those who assisted in preparing the rebel balloting to the economic sanctions list.
Derivatives traders became the most bearish on the ruble since 2011. Bank of Russia raised its benchmark interest rate by 1.5 percentage points to 9.5 percent on Oct. 31, compared with a 50 basis-point increase predicted by the median forecast in a Bloomberg survey of analysts. The bank didn’t change its ruble intervention policy, “which is what disappointed market participants,” Commerzbank’s Quijano-Evans said.
Traders are paying a 6.59 percentage-point premium for options to grant the right to sell the ruble against the dollar during the next three months, over those that give the right to buy the Russian currency, according to risk-reversal data on Bloomberg.
The ruble risk reversal is the highest on a closing basis since October 2011 and the biggest among 23 emerging markets, the data show.
The yield on Russia’s dollar bond due in September 2023 rose eight basis points to 4.93 percent, and the rate the August 2023 local-currency note increased one basis point to 10.09 percent, the highest since Oct. 29.
Russian markets will be shut tomorrow for another public holiday before opening on Nov. 5.