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Russian ruble nears 5-year high as EU buckles in gas row with Vladimir Putin


Russian Ruble appears to be rebounding after taking hit

Moscow’s currency rose past 64 per dollar on Monday, May 16, briefly jumping to 62.71 to the greenback as it became the world’s best-performing currency so far this year. Central bank data revealed Russia’s current account surplus has more than tripled from January to April to $95.8 billion, boosted by higher proceeds from imports and a drop in imports.

The boost is also due to artificial support from capital controls that Russia imposed to shield its financial sector in late February after it sent tens of thousands of troops into Ukraine.

It comes as the European Commission performed a major U-turn in its row with Russia after it bowed down to Putin’s demands with a plan to allow payment for Russian natural gas under the Moscow payment scheme.

The bloc has given EU companies the green light to pay for Russian gas without breaching the bloc’s sanctions against Moscow, while also satisfying the Russian President’s demand for payment in rubles.

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The Russian ruble has made gains (Image: GETTY )

putin eu

Moscow’s currency firmed past 64 per dollar on Monday (Image: GETTY )

Last month, Putin warned that unless European nations open up ruble accounts in Russian banks, Moscow will terminate its gas contracts in attempt to boost its economy after Western sanctions hit the country hard amid the raging war in Ukraine.

While the bloc initially refused to pay for Russian gas in rubles, the EU Commission has now caved to Putin’s threat, as the fuel-starved continent relies on Moscow for 40 percent of its energy needs.

In updated guidance, shared with EU countries on Friday, May 13, the Commission confirmed its previous advice that EU sanctions do not prevent companies from opening an account at a designated bank, and companies can pay for Russian gas – so long as they do so in the currency agreed in their existing contracts and declare the transaction completed when that currency is paid.

READ MORE: Panicked EU prepares for Russia retaliation – leaked document

Nearly all of the supply contracts EU companies have with Russian gas giant Gazprom are in euros or dollars.

Russia cut gas supply to Poland and Bulgaria last month for refusing to comply with its ruble payment demand.

Several EU governments and large importers have sought more clarity from Brussels on whether they can keep buying gas, which heats homes, produces electricity and powers factories across Europe.

The guidance told companies to make a “clear statement” saying that when they pay euros or dollars, they consider their obligations under existing contracts to be fulfilled.

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It should be understood that “such payments in that currency discharge definitively the economic operator from the payment obligations under those contracts, without any further actions from their side as regards the payment,” it said.

By ending its obligations once it deposits euros or dollars, a company could avoid being involved in dealing with the Russian central bank, which is under sanctions, and which could have been involved in converting the euros to roubles.

President Vladimir Putin’s decree had said a transaction would only be deemed complete after the foreign currency was converted to rubles.

A Commission spokesperson said: “Our fundamental position remains unchanged. The payment process set out in the Russian Decree of 31 March would breach EU sanctions, but there are options available for EU companies to continue paying in euros or dollars in line with the agreed contracts.”

Alexander Dzhioev, an analyst at Alfa Capital, said the situation on the domestic currency market has been the same for several weeks and the ruble keeps firming as foreign currency supply exceeds demand.

It was unclear whether Putin’s demand for gas payments in rubles had also supported the currency.

At 3pm GMT on Monday, the ruble was 1.5 percent stronger against the dollar at 63.59 , close to its strongest since early February 2020 of 62.6250, which it hit on Friday.

Rosbank analysts forecast the ruble would slide to 90 to the dollar by year-end, adding: “The current capital control measures brought the rouble back to pre-pandemic levels”.

Against the euro, the rouble rose 1.6 percent to 66.05 , staying near its strongest level since June 2017 of 64.9425, which it touched on the Moscow Exchange on Friday.

Meanwhile, Russian stock indexes jumped higher.

The dollar-denominated RTS index was up 3 percent at 1,165.7 points.While the ruble-based MOEX Russian index rose 2 percent to 2,354.1 points.





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