Rouble extends gains, Russia stocks also up on 5th trading day

London: The rouble firmed on Wednesday, extending a recovery and heading towards levels seen before Russia launched what it calls "a special operation" in Ukraine. Stocks inched higher on the fifth trading day after a month-long hiatus.

The rouble was 2% higher at 83.50 against the dollar and had touched 82.55 on the Moscow Exchange, a level last seen on Feb. 25, the day after Russia sent tens of thousands of troops into Ukraine.

Against the euro, the rouble rose 2% to 92.30 , having briefly hit 90.73, its strongest since Feb. 23.


The rouble is now driven by export-focused companies that are obliged to sell foreign currency as well as by month- and quarter-end tax payments that boost demand for roubles, while importers' activity is low, said Natalia Orlova, chief economist at Alfa Bank.

"This created an imbalance on the currency market as a result of which foreign currency supply substantially exceeds demand and thus leads to the firming of the (rouble) rate... I see the current (rouble) rate strengthening as temporary," Orlova said.

Dynamics driving the rouble lately are to some extent artificial. The currency, which had been free-floating until late February, is now steered by capital controls, a ban on buying cash dollars and euros and other administrative measures.

Sberbank CIB said the rouble could continue firming until the central bank starts to ease capital controls.

On the interbank market, the rouble traded at about 83 against the dollar. Banks offered to sell euros at 91.25 roubles and buy at 95 roubles.

This week, the rouble received some support from the recent round of Russia-Ukraine talks in Istanbul, where the Russian delegation promised to scale down military operations around the Ukrainian capital of Kyiv.

The Russian currency is extending gains made last week after President Vladimir Putin demanded that natural gas exported to Europe or the United States be paid for in his country's currency. European countries, which import about 40% of their gas from Russia and pay mostly in euros, say state-controlled Russian gas giant Gazprom is not entitled to redraw contracts. The G7 group of nations rejected Moscow's demands this week.

VOLATILE STOCKS
Russian stocks have moved sharply and sometimes erratically in the past few days, after the central bank allowed the market to end a nearly month-long pause.

Trading hours on the stock market are shorter than in the past and trading volumes are far lower than normal, and non-residents are barred from selling stocks and OFZ rouble bonds until April 1.