Ruble closes at highest level in 5 years against euro

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Ruble closes at highest level in 5 years against euro

The ruble closed at the highest level in five years against the euro as more European companies seemed to be complying with Vladimir Putin's demand to pay in Russia's currency for natural gas.

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The ruble went up as much as 9% against the euro and ended Friday's session 2.8% stronger against the dollar in Moscow. The Russian currency is the best performer in the world this year.

Capital controls, collapsing imports and surging energy prices have left the ruble about 20% stronger than before the invasion of Ukraine almost three months ago. The central bank easing the restrictions on the market hasn't been able to reverse the appreciation, which could cause a problem for the budget as a large share of revenue comes in foreign currency.

On top of that, many foreign clients of Gazprom PJSC are complying with Putin's demands by opening foreign-currency and ruble accounts with Gazprombank to transfer funds for conversion.

As more buyers of gas open special accounts, pressure on the dollar and euro will increase, said George Vaschenko, head of the Russian stock market operations department at Freedom Finance LLC. There won't be a lot of 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. Yuri Popov, a FX and rates strategist at Sberbank CIB, predicts that the ruble could reach 50 per dollar by the end of the third quarter.

According to Moscow Exchange data, trading in the euro versus ruble was more than doubled in volume on Thursday compared to the previous day.

Under the new mechanism, Russian pipeline gas importers must open two accounts at Gazprombank to handle payments for fuel. Nearly half of Gazprom's more than 50 foreign clients have already opened such accounts, Deputy Prime Minister Alexander Novak said earlier this week.

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He didn't say who the companies or countries are complying with the new payment mechanism, but he said only that some of Gazprom's major clients have paid for deliveries or are ready to pay on time, avoiding a supply cutoff.

Last month, Gazprom stopped gas flows to Poland and Bulgaria for non-compliance with Putin s decree. In Finland, flows on a main pipeline are set to stop in the early hours of Saturday after the country refused to pay in rubles.

The exchange rate could possibly go even stronger, said Evgeny Koshelev at Rosbank. The overhang of hard currency can't be absorbed by internal means banks are less interested because there is no demand and the population doesn't have any way of using it. Putin sets Russians on a Wild Hunt for Dollars in Black Market.

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