Ruble Dips as Fruitless Russia-Ukraine Negotiations Fuel Market Discontent

The Russian ruble experienced a notable depreciation on Thursday, both on the Moscow Exchange and in over-the-counter foreign exchange markets, following the conclusion of the latest peace negotiations between Moscow and Kyiv, which showed little promise for resolving the ongoing conflict.

The Chinese yuan appreciated nearly 2% within the first three hours of trading, reaching 11.1485 rubles, marking its highest point since late May, before retracting to 11.04 rubles by 4:39 PM Moscow time.

In the over-the-counter market, the dollar surpassed 79 rubles for the first time in three weeks, hitting a peak of 79.55 rubles, while the euro surged to 93.5 rubles, its highest in over 11 weeks.

“The market reaction was one of disappointment given the largely symbolic outcome of Wednesday’s negotiations between Russia and Ukraine in Istanbul,” commented Natalia Milchakova, chief analyst at Freedom Finance Global.

The third session of talks between the two delegations was the briefest yet, lasting just under 40 minutes. Only minor agreements were reached, including continued exchanges of prisoners and deceased individuals, as well as the establishment of working groups for online discussions.

Ukraine also advocated for an in-person meeting between President Volodymyr Zelensky and his Russian counterpart Vladimir Putin during the discussions; however, the Kremlin deemed this suggestion as untimely.

“A meeting of that nature can only take place once significant groundwork has been established,” stated Kremlin spokesman Dmitry Peskov on Thursday.

The MOEX index, which tracks the shares of 40 leading Russian corporations, dropped by 1%, resulting in a loss of 60 billion rubles in market value. Gazprom shares fell by 1.2%, while Sberbank shares decreased by 0.94%.

Milchakova noted that the stock market is currently under strain due to disappointing corporate earnings, as elevated interest rates and slowing economic growth take their toll.

In addition, investment banker Yevgeny Kogan pointed out that the ruble is facing pressures from declining export revenues, particularly after Russian export prices hit a low point in May, with Urals crude falling below $50 per barrel.

“Export earnings tend to lag, and we’re currently witnessing the repercussions of that,” Kogan remarked.

Some investors are selling off rubles in anticipation of a substantial interest rate reduction by the Russian Central Bank, potentially from 20% to 18% as early as Friday, according to analysts at PSB Bank.

They predict that the ruble could depreciate by nearly 10% by the end of the year, potentially falling to 12 rubles against the yuan.