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23 May, 2022 14:57

Ruble hits seven-year high vs euro as gas buyers concede to Russia’s demand

The Russian currency has grown stronger as European energy importers switch to ruble payments
Ruble hits seven-year high vs euro as gas buyers concede to Russia’s demand

Russia’s currency has hit its strongest level against the euro since June 2015 as more European companies appear to be complying with Moscow’s demand that natural gas imports should be paid for in rubles.

On Monday, the ruble was trading at 58.80 to the euro and 57.40 against the dollar on the Moscow Exchange as of 14:20 GMT. Experts note that capital controls, collapsing imports and surging energy prices have made the ruble about 20% stronger than before the sanctions.

Many European gas buyers are complying with President Vladimir Putin’s demand by opening foreign-currency and ruble accounts with Gazprombank to transfer funds for conversion.  Around half of Gazprom’s more than 50 foreign clients have already opened such accounts, according to Deputy Prime Minister Alexander Novak.

“Pressure on the dollar and euro will increase as more buyers of gas open special accounts,” said George Vaschenko, head of the Russian stock market operations department at Freedom Finance, as quoted by Bloomberg. “There won’t be pressure every day – and the currency could fall back into the range of 59-60 rubles – but there will be fresh waves of strengthening, for sure,” he added.

An FX and rates strategist at Sberbank CIB, Yuri Popov, has reportedly predicted that the ruble could reach 50 per dollar by the start of the third quarter.

The Russian currency is the best performer globally this year, according to data from Bloomberg. However, some Western analysts have claimed that the ruble’s official exchange rate is artificial due to capital controls imposed by the Russian Central Bank.

As part of these controls, Russian citizens and residents are allowed to buy euros, US dollars or other European currencies at the official exchange rate but cannot withdraw the foreign funds until September 9. People who held US dollar and euro accounts at Russian banks before March 9 are allowed to withdraw $10,000 or its equivalent for the period up to September 9. However, Russian citizens can buy any other foreign currencies, and ruble withdrawals are not limited.

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