The rouble weakened marginally on Tuesday, with investors focused on a video call between Russian President Vladimir Putin and his U.S. counterpart Joe Biden later in the day, as the threat of new sanctions against Moscow lingered over the talks.
Biden will tell Putin that Russia and its banks could be hit with the toughest economic sanctions yet if it invades Ukraine, U.S. officials said, news that sent the Russian currency into the red in the late trading on Monday.
By 1404 GMT, the rouble was 0.2% weaker against the dollar at 74.46, after having gained against the greenback earlier in the session. It rose 0.2% to 83.70 versus the euro.
Yields on the government’s 10-year benchmark treasury OFZ bonds were under pressure as well, adding eight basis points to 8.60% and remaining near their highest levels since early 2019 as geopolitical tensions rise.
Kyiv and the West say Russia is amassing troops near Ukraine. Russia denies any such plans and says it moves troops within its borders as it sees fit.
The Kremlin said on Tuesday it was not expecting a breakthrough at the talks and urged people to remain calm despite mounting tensions.
Latvia said Russia could be cut off from the SWIFT payment system used by banks all around the world, a move that would exacerbate Russia’s high inflation problem, said Max Castle, a fixed income portfolio manager at Mediolanum Irish Operations.
“That would cause a severe economic downturn in Russia, and even for Putin the cost would be too great,” he said. “That doesn’t mean Putin will not do more moves and become more aggressive.”
SWIFT measures have been an underlying threat for a couple of years. Andrey Kostin, chief executive of Russia’s second largest bank, VTB, has said such a move would be comparable to a declaration of war.
One source told Reuters targeting Putin’s inner circle with sanctions had been discussed but no decision had been made.
Another source said sanctions curbing the conversion of roubles into dollars and other currencies was also an option, an idea the CEO of Russia’s dominant lender Sberbank German Gref called “nonsense” and “impossible to execute”.
The sanctions threat could be part of a U.S. strategy to deter Russia, Sova Capital said, adding that the call could cool tensions between the West and Russia and reduce some of the geopolitical risks in the rouble and Russia’s financial assets.
But BCS Global Markets said the United States firing threats on the eve of the summit arguably inflamed rather than defused tension, and eroded hope of finding common ground.
Brent crude oil, a global benchmark for Russia’s main export, was up 2% at $74.55 a barrel, supporting Russian stock indexes.