Rouble weakens beyond 70 per dollar before rate decision this week

MOSCOW (Reuters) - The Russian rouble weakened beyond 70 versus the dollar for the first time since mid-March 2016 on Monday, remaining under pressure from the possibility of more U.S. sanctions.

A vendor places Russian rouble banknotes into a cash register at a grocery shop in the Siberian city of Krasnoyarsk, Russia, August 6, 2015. REUTERS/Ilya Naymushin

The rouble hit 70.51 in afternoon trade on the Moscow Exchange, taking its year-to-date losses close to 19 percent.

U.S. Senate hearings on Wednesday on sanctions against Russia, and an interest rate decision by the Russian central bank on Friday will be the main events this week, said Rosbank, a subsidiary of Societe Generale.

As of 1502 GMT, the rouble was 0.7 percent weaker at 70.40 versus the dollar RUBUTSTN=MCX and had shed 1.1 percent to trade at 81.68 against the euro EURRUBTN=MCX.

The threat of sanctions has overshadowed Russian financial markets since early August as new penalties might be applied to holdings of Russian state debt. Concerns about the Russian-U.S. dispute over the Syrian conflict have also weighed.

Domestic politics are also a factor. Over the weekend, police detained around 1,000 people protesting against planned increases in the pension age, disrupting demonstrations against an unpopular change that has hurt President Vladimir Putin’s approval rating.

“I imagine that pictures of school kids beings rounded up in Moscow by police over the weekend, and on-going concerns over on-going Russian escalation in Syria (Idlib) will not have played very well with the U.S. Congress which is still mulling over new Russians sanctions iterations,” said Tim Ash, a strategist at BlueBay Asset Management.

The central bank is seen holding the main rate at 7.25 percent this week as the weaker rouble, hit by the sanctions factor and a sell-off in other emerging markets, is set to filter into consumer prices and once again boost inflation, which the central bank has just recently managed to rein in.

Senior Russian officials are keeping up verbal pressure on the central bank, which is not available for comment as it observes a week of silence before rate decisions.

Kremlin economic aide Andrei Belousov said on Monday a possible rate increase would be “highly undesirable” after Prime Minister Dmitry Medvedev said late last week that lending rates in Russia should be lower.

The central bank is independent, and markets and investors regard Governor Elvira Nabiullina as a stable hand on the tiller.

Reporting by Andrey Ostroukh; Editing by David Stamp