The ruble slid to a record against the dollar for a second day Monday and stocks fell as the threat that Russia will face tougher sanctions amid intensified fighting in Ukraine outweighed negotiations to end the conflict.
The currency retreated 0.3 percent to 37.2505 per dollar at 6 p.m. in Moscow, after weakening earlier to as low as 37.51. The yield on 10-year Russian local-currency securities climbed three basis points to 9.83 percent. The Micex Index of equities lost 0.5 percent in its third day of declines.
Representatives from Russia, Ukraine, the Organization for Security and Cooperation in Europe and Ukrainian separatists met in Belarus for consultations on restoring peace, helping trim the ruble’s drop of as much as 1 percent. The government in Kiev claimed about 1,600 Russian soldiers were advancing into the country’s southeast, while European Union governments agreed to impose new sanctions on Russia if the conflict that’s killed almost 2,600 people worsens.
The exchange rate recovered amid “some early signs that the sides may commence a dialog,” Alexei Egorov, an analyst at OAO Promsvyazbank, said by e-mail. When U.S. markets reopen tomorrow after the Labor Day holiday, “the direction may change given the uncertainties surrounding the sanctions,” he said.
Trading in ruble options indicates a 60 percent chance the currency will touch 40 per the dollar over the next six months, according to data compiled by Bloomberg. It lost 3.7 percent versus the dollar in August, the biggest retreat in emerging markets.
Ukrainian Eurobonds extended the longest losing streak in 17 months. Russian President Vladimir Putin called for talks on statehood for Ukraine’s battle-torn southeast “in order to serve the interests of people living there,” according to a television interview broadcast yesterday. Pro-Russian rebels attacked two Ukrainian coast-guard vessels after advancing toward the Black Sea towns of Novoazovsk and Mariupol.
The worst standoff between Russia and the U.S. and its allies since the Cold War has curtailed economic growth in the country of about 143 million people. The economy will contract 0.2 percent in the third quarter, according to the median estimate in a survey of 38 analysts compiled by Bloomberg News.
“Fears of new sanctions from the EU are shaking the ruble market,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “Rebels are succeeding in their advance in eastern Ukraine so in the EU’s perspective, an escalation is happening.”
The ruble has retreated 12 percent against the dollar this year, the most among 24 developing countries monitored by Bloomberg after the Argentine peso. The exchange rate lost 0.3 percent to 48.9050 per euro today in its fourth day of declines. It depreciated 0.3 percent against the central bank’s target basket of dollars and euros to 42.4939.
The currency would have to weaken another 4.3 percent against the basket to reach the 44.40 threshold that would trigger the Bank of Russia to take steps to support it. The ruble may now “react to external conditions in the absence of central-bank interventions,” Dmitry Polevoy, the chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said in an e-mailed note.
Thirty-four of the Micex’s 50 members declined today, led by OAO Magnit, the nation’s biggest food retailer, which lost 2.2 percent. The depreciating currency increases the cost of imports for Russian supermarkets, Slava Smolyaninov, a strategist at UralSib Financial Corp. in Moscow, said in e- mailed comments.
OAO Rosneft advanced 1.3 percent on prospects the weaker ruble will boost earnings since the Russia’s largest oil company gets paid in dollars, according to Elbek Dalimov, a trader at Aton Capital in Moscow.
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