Rouble hits a 14-month low vs dollar; Russian stocks slide

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MOSCOW, Jan 24 (Reuters) - The rouble hit a 14-month low against the dollar on Monday, extending earlier losses, while Russian stocks tumbled further against the backdrop of a stand-off between Moscow and the West over Ukraine.

Volatility has plagued Russian assets in recent weeks. Western powers fear that Russia is poised to invade its neighbour, which Moscow has repeatedly denied planning. The U.S. on Sunday said it was ordering diplomats' family members to leave Ukraine. read more

If Russia does make an incursion, the West has threatened sanctions with profound economic effects. read more

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By 0918 GMT the rouble was 0.9% weaker against the dollar at 78.18 , having earlier slipped to 78.32, its weakest since Nov 2020. Against the euro, it lost 0.8% to 88.60 .

Stocks were falling sharply. Russia's dollar-denominated RTS index (.IRTS) was down 6% at 1,317.2 points. The rouble-based MOEX Russian index (.IMOEX) was 5% down at 3,270.6 points.

"For the local market, expect risk-off to continue, with tensions smouldering and little opportunity to save face on either side – future events are up for debate, uncertainty will rule for now," BCS Global Markets said in a note.

Russia's 10-year OFZ bond yields hit 9.68%, near their highest since early 2016, before dropping to 9.59%. Yields move inversely to prices.

OFZ yields could rise further, Promsvyazbank analysts said, with investors expecting Russia's central bank to raise its key rate again on Feb. 11 and with edgy markets even pricing in a small chance that the U.S. Federal Reserve raises rates this week to combat inflation.

The European Union is ready to impose "never-seen-before" economic sanctions if Russia attacks Ukraine, Denmark's foreign minister said on Monday ahead of a meeting of the bloc's foreign ministers. read more

Separately, Ireland said that Moscow had notified it of Russian naval exercises in international waters in the Irish Sea, adding that they were unwelcome.

Geopolitical tensions drove Russian 5-year credit default swaps to their highest since March 2020, and rouble's volatility gauged to its highest since November 2020.

"We find that we are currently approaching levels of rouble's implied volatility at which the central bank has in the past suspended foreign exchange purchases under the fiscal rule," Citi said in a note. Central bank declined comments.

Under a fiscal rule adopted in 2017 to strengthen the National Wealth Fund, Russia buys foreign currency when oil prices are high and sells when prices go below $44 per barrel, shielding the rouble from oil price swings.

In 2020, Russia was selling FX, which helped limit rouble losses amid an oil price slump, the COVID-19 pandemic and geopolitical risks.

Russian officials say the country's finances are healthy and economic fundamentals are strong. read more

Russia is also grappling with rising COVID-19 cases, which hit a record high of 65,109 on Monday, with the Omicron variant spreading across the country. read more

Brent crude oil , a global benchmark for Russia's main export, was up 0.1% at $88 a barrel.

For Russian equities guide see

For Russian treasury bonds see

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Reporting by Alexander Marrow and Katya Golubkova Additional reporting by Elena Fabrichnaya; Editing by David Goodman and Toby Chopra

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