MOSCOW (Reuters) – New U.S. sanctions that forced Russia's leading exchange to halt trading in dollars and euros led to a range of mixed prices and spreads as trading moved over-the-counter on Thursday, hindering access to reliable prices for the Russian euro. currency.
The Russian Central Bank set the official exchange rate of the ruble to the dollar on Friday at 88.21, which means an increase of about 0.9% from the previous close. But the sanctions have caused confusion in how to accurately determine the exact value of the currency.
On the interbank market, the ruble traded between a 10-day low of 90.25 and a one-year high of 86.28, eventually settling 0.4% higher at 88.62.
The central bank calculated its official rate based on over-the-counter trading, rather than its previous method of using trades on the Moscow Stock Exchange, Russia's leading financial market.
Washington's sanctions on MOEX, and crucially its clearing agent, the National Clearing Center (NCC), had been expected since Russia's large-scale invasion of Ukraine in February 2022, but the move still caught the market by surprise.
The sanctions led to the suspension of trading in the US dollar, the euro and the Hong Kong dollar on the MOEX exchange. The United States said it aims to stop the flow of money and goods used to support Russia's war in Ukraine.
MOEX is part of Russia's vital financial infrastructure, but the latest sanctions are seen as having a limited impact on Russia's ability to continue selling its oil and gas internationally, as Moscow has already shifted much of its trade flows toward China and other Asian countries.
“Over the past two years, the role of the US dollar and the euro in the Russian market has been constantly declining,” the central bank said on Thursday.
The yuan overtook the dollar to become the most traded currency with the ruble in Moscow, accounting for 54% of the foreign exchange market share in May.
The ruble settled at 12.22 against the yuan and touched the highest level in almost a year at 11.8430 earlier in the session.
Russia's ruble-based MOEX index fell to its lowest level in nearly six months in early trading, before paring losses to close unchanged at 3,171.7 points. MOEX shares fell by about 15%, before settling down by about 3.1%.
Volatility, wide spreads
BCS World of Investments analysts said, “The sanctions imposed on major institutions in the Russian financial sector are the most serious in the past year and a half after the imposition of the oil embargo and the maximum oil prices.”
About 60% of forex trading in the January-April period was in the over-the-counter market, so it provides a sufficient basis for forming the official exchange rate, BCS said.
“At the same time, the lack of a single trading floor will increase the spreads on foreign exchange operations from banks.”
Banks, companies and investors are no longer able to trade US dollars or euros via a central exchange, which provides advantages such as liquidity, clearing and oversight.
Instead, the murky OTC market, where trades are made directly between two parties, will dominate.
“New sanctions should not affect the ruble price in the medium term,” said Yuri Popov, investment research strategist at SberCIB. “In the short term, there may be high volatility and wide spreads in exchange counters.”
Some major brokers have blocked accounts in dollars, euros and Hong Kong dollars, with deposits and withdrawals unavailable.
Sberbank, Russia's dominant lender, said it did not see an increase in demand for foreign currencies at its branches and that foreign exchange rates had not changed since yesterday.
