Russia took a 180-degree turn to avoid default, making a series of late interest payments in dollars on its overseas bonds, despite promising to pay only in rubles if its reserves remained frozen.
Russia’s $40 billion of international bonds have become the center of a nervous game following Western sanctions, and speculation of a default is likely to reignite in less than four weeks, when the US license allowing to Moscow make payments.
The Russian Ministry of Finance announced the payment of 564.8 million dollars in interest on a 2022 eurobond and another 84.4 million belonging to another 2042 bond in dollars, the currency specified in the bonds.
A senior US official confirmed that Moscow had made the payment without using frozen US reserves, adding that the exact origin of the funds was unclear.
“We do not authorize any transaction with the funds immobilized in the US,” the official said.
US Treasury Deputy Secretary Wally Adeyemo said the payments diverted funds from Russia’s war effort in Ukraine and were a “sign of success” for US sanctions policy.
Adeyemo declined to comment on the future of a general Treasury license that expires on May 25 that allows banks to process Russian debt payments.
Our overall goal is to try to deprive Russia of the resources it is using both to prop up its economy and finance its war effort, and to stop its invasion of Ukraine. So we are going to continue to make political decisions with that in mind,” he assured.
Russia said it had channeled the required funds to the London branch of Citibank, one of the paying agents whose job it is to disburse them to bondholders. Citibank declined to comment.
“Payments were made in the currency of issuance of the corresponding Eurobonds: in US dollars,” the Russian Finance Ministry said. “In this way, the service obligations of the sovereign Eurobonds are met.”
From 17 to 14%
Central bank cuts rate
The Central Bank of the Russian Federation reduced for the second time, in less than a month, its reference rate from 17% to 14%, claiming that inflation and financial stability are under control after the initial impact of the Russian offensive in Ukraine. Analysts had expected a cut, but to a lesser extent, to 15 percent.
The central bank raised its rate to 20% in late February, just days after troops were ordered into Ukraine and the first Western sanctions aimed at isolating Russia from the world economy.
In early April, it surprisingly lowered its rate to 17%, explaining that financial stability risks had “stopped increasing.”
“It now seems plausible that the rate will drop to 10% by the end of the year,” Liam Peach, an analyst at Renaissance Capital, said in a note.
The bank itself estimates that “it can find room for a cut in its reference rate in 2022.” (AFP)