A picture illustration shows Russian rouble banknotes of various denominations on a table in Warsaw, Poland, January 22, 2016. REUTERS/Kacper Pempel/File Photo

May 27 (Reuters) – The Russian rouble extended its losses on Friday after plunging in the previous session as the country’s central bank slashed interest rates, signalling more cuts, and the prospect of easing capital controls and a possible sovereign default hammered the currency.

The rouble slumped around 10% to the dollar and euro on Thursday after the central bank lowered its key rate to 11%, the third 300-basis-point cut in a row, as inflation slows from more than 20-year highs. read more

As the rouble continued swinging this way and that on Friday, Prime Minister Mikhail Mishustin said the government wanted to avoid currency volatility, a sign that Moscow is not entirely comfortable with the rouble’s seemingly uncontrollable moves.

By 1316 GMT, the rouble was 1.3% weaker against the dollar at 66.09, swinging during the session from 64.89 to a more than two-week low of 67.4950. On Wednesday, the rouble had hit its strongest level since February 2018 of 55.80 against the greenback.

Versus the euro, the rouble lost 1.4% to trade at 68.93 , sliding further away from the seven-year high of 57.10 hit on Wednesday.

Propped up by capital controls, the rouble had artificially risen to become the world’s best-performing currency so far this year until this week’s slide. New gas payment terms requiring conversion of foreign currency into roubles and a fall in imports have also helped.

But it has now lost the support of the month-end tax period that usually sees export-focused companies convert foreign currency into roubles to pay local liabilities.

ROUBLE BALANCE

Economy Minister Maxim Reshetnikov said excessive rouble appreciation posed deflation risks, adding to his comments on Thursday that the currency’s strength, which has raised concerns about the negative impact on Russia’s budget revenue from exports, was making Russian goods uncompetitive abroad.

“The rouble has to be within some reasonable limits,” he said.

Reshetnikov, who also praised the central bank’s rate cut hoping it will spur lending activity, has said he expects the mandatory proportion of foreign currency revenue that exporters must convert into roubles to be cut further from 50%.

Market eyes are focused on Russia’s National Settlement Depository (NSD), which has promised to make interest payments on Friday worth $71.25 million and 26.5 million euros ($28.5 million) on two Eurobonds , . read more

That is in spite of Washington deciding against extending a key licence that had allowed Moscow to keep paying bondholders despite the sanctions imposed over its actions in Ukraine, putting Russia on the cusp of a unique kind of debt crisis. read more

Russian stock indexes were falling.

The dollar-denominated RTS index (.IRTS) was down 2.3% at 1,153.9 points. The rouble-based MOEX Russian index (.IMOEX) was 0.2% lower at 2,406.5 points.

($1 = 0.9305 euros)

Reporting by Reuters; Editing by Nick Macfie and Maju Samuel

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