Russian rouble weakens as default looms

MOSCOW Reuters - The rouble weakened in volatile Moscow trade on Monday as Russia looked poised for its first default in decades after a payment deadline expired before some bondholders had overdue interest.

The grace period for $100 million interest payments due on May 27 expired on Sunday. The Kremlin says there is no reason for Russia to default, but that sanctions have hampered its ability to send money to bondholders, accusing the West of trying to drive it into an artificial default.

The rouble was 0.5% weaker against the dollar at 53.68 at the time of 0728 GMT, shedding around 2% and touching its weakest since June 21 of 54.4975.

It had lost 0.6% to trade at 56.43 against the euro.

The rouble has become the world's best performing this year because of Russia's high profits from commodity exports, a drop in imports and a ban on households withdrawing foreign currency savings.

The strong rouble hammers the incomes of export-focused companies and could weigh on the economy as it enters recession after harsh sanctions over what Moscow calls a special military operation in Ukraine.

Capital controls have buttressed the rouble for months while exporting companies convert dollar and euro revenue into roubles may add short-term support, as this week's peak of a month-end tax period.

Alor Broker said that there was no increase in currency sales last week by exporters, so they could have left the process of forex conversion until the last minute, which would see the rouble strengthen.

Exporters may have already stockpiled the necessary rouble amounts, according to Alor.

On the bond market, yields on 10 year benchmark OFZ bonds, which move inversely with their prices, fell to 8.68%, their lowest since early 2022.

The dollar-denominated RTS index was down 0.3% to 1,410. 4 points. The Russian MOEX index was 0.5% higher at 2,404. 3 points.