Russian Rouble Hits 7-Year High Vs Euro As Gas Buyers Meet Moscow's Payment Demand

The rouble on Monday had gained 6.3 per cent to trade at 58.75 versus the euro, its strongest point since early June 2015. Against the dollar, rouble was 4.6 per cent stronger at 57.47.

Several foreign clients of Gazprom PJSC are complying with Vladimir Putin’s demands by opening foreign-currency and rouble accounts with Gazprombank to transfer funds for conversion. ( Image Source :Getty )

New Delhi: The rouble, boosted by capital controls, strong oil prices, and an upcoming month-end tax period, closed over 6 per cent against the euro on Monday to a near seven-year high, according to a report in Reuters.

The rouble on Monday had gained 6.3 per cent to trade at 58.75 versus the euro, its strongest point since early June 2015. Against the dollar, rouble was 4.6 per cent stronger at 57.47.

Rouble’s strongest mark was 57.0750, which was recorded since late March 2018.

The rouble has advanced nearly 30 per cent against the dollar this year despite a full-scale economic crisis in Russia.

According to the report, the Russian currency became the world's best-performing currency despite harsh Western sanctions on Moscow following Russia’s invasion in Ukraine.

The rouble is being driven by export-focused firms that are obliged to convert their foreign currency revenue after the sanctions froze nearly half of Russia's gold and forex reserves.

According to Tinkoff Investments analysts, while the Russian central bank and government leave restrictions in place, the rouble could continue to strengthen further in the medium term.

"Closer to autumn, the exchange rate may start to stabilise nearer to the 60-65 level as imports recover and restrictions are potentially lifted."

Otkritie Bank analysts said the rouble may firm to 55 to the dollar within a month before weakening to 70-80 by year-end.

Analysts have pointed out that Russian demands that foreign buyers pay for gas in roubles has also contributed to the rouble's recent rally.

Interventions by central bank

The Russian central bank had begun purchasing foreign currency (Forex) in order to stop the rouble's uncontrolled strengthening, said a source to The Vedomosti daily reported on Monday.

However, the central bank denied the report, saying "this information does not correspond to reality".

Promsvyazbank analysts said that if the central bank were carrying out such interventions, the effect on the rouble rate would be more noticeable.

"Nevertheless, such news could influence the behaviour of market participants and provoke a weakening of the rouble."

According to a Bloomberg report, several foreign clients of Gazprom PJSC are complying with Vladimir Putin’s demands by opening foreign-currency and rouble accounts with Gazprombank, the gas giant’s lending arm, to transfer funds for conversion.

Under the new mechanism, importers of Russian pipeline gas must open two accounts at Gazprombank to handle payments for the fuel.

Deputy Prime Minister Alexander Novak said earlier this week that around half of Gazprom’s more than 50 foreign clients have already opened such accounts.

However, he didn’t specify the companies or countries complying with the new payment mechanism, saying only that some of Gazprom’s major clients have either paid for deliveries or are ready to pay on time, avoiding a supply cut-off.