Ruble Nears This Year’s Low as Sanctions War Seen Hurting Growth

The ruble weakened for a seventh day, approaching this year’s low, on concern a sanctions war with the U.S. and Europe over Ukraine may drive up inflation and stifle economic growth.

The currency lost 0.5 percent to 36.4555 per dollar as of 12:30 p.m. in Moscow. The ruble is 8 kopeks from the weakest level this year of 36.5970 that was reached on March 14, the last trading day before the Crimean referendum on joining Russia. The yield on 10-year government bonds rose five basis points to 9.95 percent, the highest since October 2009.

Russia yesterday banned imports of cheese, fish, beef, pork, fruit, vegetables and dairy products from the U.S., European Union, Canada, Australia and Norway for 12 months. The government may also close Siberian airspace for Western airlines. The moves were triggered by sanctions imposed earlier on Russian companies, banks and individuals for its backing of the insurgency in Ukraine.

“Geopolitics, geopolitics and geopolitics again -- the risks are increasing,” Dmitriy Gritskevich, an analyst at OAO Promsvyazbank, said in e-mailed comments. “In response, the European Union might prepare its own response. In a word, the wheel has started turning.”

The ruble fell 0.8 percent to 48.8815 against the euro and traded 0.7 percent weaker versus the central bank’s target basket of dollars and euros at 42.0875. The threshold at which the central bank will start buying $200 million of rubles per day lies at 42.45 rubles against the basket.

The peak of the summer harvest has yielded strong results, so import bans are unlikely to boost inflation in the short term, Sberbank CIB analysts led by Tom Levinson said in an e-mailed note.

The Russian central bank has raised the key one-week auction rate 250 basis points since the beginning of the year to 8 percent to combat inflation, which was at 7.5 percent in July versus the central bank’s target of 6 percent.

“In the longer term, the risk of higher food inflation cannot be dismissed, thus raising the probability of more central bank rate hikes,” the Sberbank analysts said.

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