Volatile rouble pares intraday losses as Russia slips into default zone

© Reuters. FILE PHOTO: A picture illustration shows Russian rouble banknotes of various denominations on a table in Warsaw, Poland, January 22, 2016. REUTERS/Kacper Pempel

MOSCOW (Reuters) - The rouble pared early losses in volatile Moscow trade on Monday as Russia looked set for its first sovereign default in decades after a payment deadline expired before some bondholders had received overdue interest.

The 30-day grace period on $100 million interest payments due on May 27 expired on Sunday. The Kremlin says there are no grounds 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.

By 0758 GMT, the rouble was 0.2% stronger against the dollar at 53.31, paring losses, having earlier shed as much as 2% to touch its weakest since June 21 of 54.4975.

It had gained 0.1% to trade at 56.03 versus the euro.

The rouble, which has become by far the world's best-performing https://emea1.apps.cp.thomsonreuters.com/Apps/NewsServices/mediaProxy?apiKey=6d416f26-7b24-4f31-beb6-1b5aa0f3fafb&url=http%3A%2F%2Ffingfx.thomsonreuters.com%2Fgfx%2Frngs%2FGLOBAL-CURRENCIES-PERFORMANCE%2F0100301V041%2Findex currency this year, has been driven by Russia's high proceeds from commodity exports, a drop in imports and a ban on households withdrawing foreign currency savings.

The strong rouble squeezes the incomes of export-focused companies and could weigh on the economy as it tips into recession following harsh sanctions over what Moscow calls a "special military operation" in Ukraine.

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

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

However, Alor said exporters may have already stockpiled the necessary rouble amounts.

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.

Russian stock indexes were gaining.

The dollar-denominated RTS index was up 0.3% to 1,418.7 points. The rouble-based MOEX Russian index was 0.3% higher at 2,399.8 points.

(This content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine)