Ruble rises to 8-year high as gas buyers succumb to Putin’s wishes

The ruble has hit a seven-year high against the euro as more European companies comply with Vladimir Putin’s claim that they are switching to Russian currency payments for natural gas.

The ruble jumped 9% against the euro, reaching its strongest level since June 2015, and rose nearly 5% against the dollar at 59.18 in Moscow until 1:35 pm. The Russian currency has been the best performer of both worlds this year.

Capital controls, falling imports and rising fuel prices have strengthened the ruble by almost 20% since the invasion of Ukraine almost three months ago. The gradual relaxation of restrictions on the central bank market has not been able to reverse the perception, which could become a problem for the budget as a large portion of the revenue comes from foreign exchange.

On top of that, Gazprom is complying with Putin’s demands by opening foreign currency and ruble accounts with Gazprombank, the gas giant’s lending agency, to transfer funds to convert many of PJSC’s foreign clients.

George Vaschenko, head of Russian stock market operations at Freedom Finance LLC, said the pressure on the dollar and the euro would increase if more gas buyers opened special accounts. “There will be no daily pressure – and the currency could return to the 59-60 rubles range – but there will definitely be new waves of strengthening.”

Yuri Popov, an FX and rate strategist at Sberbank CIB, predicts that the ruble could reach প্রতি 50 per dollar by the beginning of the third quarter.

According to the Moscow Exchange, the euro vs. ruble traded more than double in volume on Thursday.

Under the new procedure, importers of Russian pipeline gas must open two accounts at Gazprombank to pay for fuel. Nearly half of Gazprom’s more than 50 foreign clients have already opened such accounts, Deputy Prime Minister Alexander Novak said earlier this week.

He did not specify which companies or countries would comply with the new payment method, saying only that some of Gazprom’s key clients had either paid for the delivery or were ready to pay on time, avoiding delivery.

Last month, Gazprom cut off gas supplies to Poland and Bulgaria for disobeying Putin’s decree. In Finland, a major pipeline will be cut off early Saturday after the country refused to pay the ruble.

“The exchange rate is likely to be stronger,” Evgeny Koshelev told Rosbank. “The overhang of hard currency liquidity cannot be exploited internally – banks are less and less interested because there is no demand, there is no way for the population to use it.”

© 2022 Bloomberg

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