Russian Ruble Weakens on Default

The Russian ruble crossed the 53 per USD level, weakening from the 7-year high of 49.5 touched last week as Russia defaulted on its sovereign debt obligations for the first time since 1918. Western sanctions blocked Western financial institutions from processing payments to creditors from Russia, triggering a default on the $100 billion in Eurobond interest payments that were due May 27. Still, the ruble remains the best performing currency year-to-date. Despite higher uncertainty of energy supply levels to Europe, surging demand for Russian oil and natural gas from Asia amid higher commodity prices supported the ruble at robust levels. Also, a collapse in importing activity due to sanctions halted demand for the dollar, exacerbating hefty fees and negative interest rates that banks apply on deposits of currencies from “unfriendly” states.