(Adds details, comment, updates prices)
By Jason Bush, Alexander Winning and Polina Devitt
MOSCOW Aug 7 Russian stocks and bonds fell on
Thursday after Moscow announced food import bans on countries
that have imposed sanctions on Moscow over the Ukraine crisis.
Prime Minister Dmitry Medvedev said Russia will ban fruit,
vegetables, meat, fish, milk and dairy imports from the United
States, the European Union, Australia, Canada and Norway for one
year starting immediately.
That followed an order from President Vladimir Putin to ban
food imports to punish countries that imposed sanctions on
Moscow for its support of rebels in eastern Ukraine and the
annexation of Crimea.
"There is nothing good in sanctions and it wasn't an easy
decision to take, but we had to do it," Medvedev said.
Russia will be able to meet its needs with local production
except for milk and beef, he added.
At 0930 GMT, the dollar-denominated RTS index was
down 1.3 percent at 1,146 points, while its rouble-based peer
MICEX also traded 1.3 percent lower at 1,318 points.
This follows steep falls on Wednesday, when the RTS fell 2.6
percent and MICEX fell 1.7 percent, amid pessimism over the
escalating East-West stand-off on Ukraine, where fighting
between government forces and separatist rebels is continuing.
"The domestic share market remains under selling pressure
against the background of strengthening fears of investors
regarding a new turn in geopolitical tensions," Promsyvazbank
analyst Oleg Shagov said in a note.
Shares in leading Russian retailer Magnit fell 3.6
percent, illustrating fears that the ban on western food imports
will raise costs.
Russia's leading banks Sberbank and VTB
were also down sharply, falling 2.9 percent and 3.3 percent
Falls in domestic-focused stocks such as retailers and banks
may reflect concerns that the food import ban will lead to
higher inflation, cutting into consumer spending power.
However, Alexander Baranov, deputy director at Pallada Asset
Management, said that a more important factor weighing on
markets was the government's decision on Tuesday to divert
pension savings from the financial system for a second year to
plug budget holes amid slowing economic growth.
Yields on Russia's ten-year treasury bonds reached 9.87
percent, the highest since late 2009 and a rise of 150 basis
points since July.
The rise in bond yields is a direct consequence of the
government's decision on pensions, which means that the
financial system will be short of funds needed to buy bond
issues next year, said Baranov.
Share prices of major Russian banks were are also impacted
as falling bond prices will hurt their financial results, he
The rouble was little changed, with potential benefits to
Russia's balance of payments from the import ban weighing
against the negative consequences for inflation.
The rouble was 0.1 pct weaker against the dollar at 36.23
but steady against the euro at
48.45. It fell 0.07 percent to 41.73 against the dollar-euro
basket, its weakest level for three months.
The food import ban is expected to add to the problems of
the Russian economy, where the central bank has already hiked
interest rates three times in recent months in an attempt to
rein in high inflation.
"In connection with the decision about limiting the import
of particular products an increase in inflation expectations is
expected, which will put additional (downward) pressure on the
Russian rouble," Rossiysky Capital analyst Anastasia Sosnova
said in a morning note.
ING economist Dmitry Polevoy said that food import bans
could add around 1.5 percentage points to the annual inflation
The central bank aims to reduce inflation to 4.5 percent in
2015, but Alfa Bank analysts said that because of the trade
restrictions "even our above-consensus 7 percent CPI growth
expectations for 2015 may be too optimistic".
(Reporting by Alexander Winning and Jason Bush; Editing by