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Russian President Vladimir Putin’s efforts to support the ruble continue to pay off — and then some.
The Russian currency hit a two-year high against the US dollar on Friday. The ruble gained ground after the country said it managed to repay creditors with dollars as Russia tries to avoid default.
The country’s Treasury Department said in a statement it had issued a $565 million Eurobond due this year, as well as an $84 million Eurobond that was set to mature in 2024. Both payments were made in US dollars, the Treasury Department claimed, as required by the bond’s contract terms.
“Payments were made in the currency of issuance of the corresponding Eurobonds – in US dollars,” Russia’s finance ministry said in a statement. “In this way, the obligations for the maintenance of sovereign Eurobonds are performed in accordance with the conditions set out in the issuance documentation.”
On April 6, Russia said it had made payments on those bonds in rubles, leading to S&P declaring three days later that Russia had defaulted on its foreign debt obligations. While dollar payments are already past due, Russia’s late payment in dollars serves as a last-ditch effort to avoid default.
Bond payments usually come with a grace period of 30 days. For these bond payments, that grace period ends on May 4. We may never know if S&P changes its mind about Russia’s default. Due to sanctions, the rating agency withdrew its rating on Russian debt on April 15.
Russia has the money to pay its debts. It simply doesn’t have access to about half of those funds after the West imposed unprecedented sanctions on its foreign reserves, totaling about $315 billion.
But Russia has apparently found a way to pay off hundreds of millions of dollars in debt without access to its frozen reserves. A US Treasury Department official said the payment must come from a fresh pile of cash because it has not lifted restrictions on Russia-sanctioned dollars, Reuters said.
The news sent the Russian ruble, which has been on the rise for two months, to a two-year high against the US dollar. For one dollar, about 68 rubles could be bought on Friday, less than half the amount that could be bought in early March. At its peak on March 7, the ruble traded at USD 135 for the dollar.
Russia has managed to support the ruble despite global sanctions, including by raising interest rates, barring Russian brokers from selling foreigners’ securities and demanding payment for gas and oil deliveries in rubles. These measures have allowed Moscow to artificially produce demand for the ruble, even as the country’s economy remains in tatters.
The country has since been able to scale back its dramatic rate hikes, including another surprise rate cut on Friday.
— Clare Sebastian of DailyExpertNews contributed to this report.
