By Andrey Ostroukh

MOSCOW, (Reuters) – The Russian rouble dropped sharply Thursday. Government bonds also fell to a record low of more than three years amid geopolitical fears about Moscow’s standoff from the West.

Russian Deputy foreign minister Sergei Ryabkov stated that Washington’s refusal of Moscow’s most important security requests was driving talks to a deadlock. According to Ryabkov, Russian military specialists had offered President Vladimir Putin alternatives in the event that Ukraine’s situation worsened.

Russia stated that its discussions with the West were not able to reach a consensus over fundamental differences regarding the Ukraine crisis. Moscow also demanded NATO’s withdrawal from eastern and central Europe.

The rouble was at 1519 GMT 2.2% lower against the dollar, at 76.36. This is far below the session high of around 74.4625.

The rouble fell 2.4% against the euro to 87.59, after it hit 87.62 in July 2021, making it its lowest since July 2021.

A forex dealer from a large Russian bank said that Ryabkov’s comments “spooked market… sparking sell-offs in the roubles and OFZ bond,”

The yields of 10-year Russian benchmark OFZ government bonds rose to 9.9%. These rates are inverted with the prices and were last observed at the end 2018.

The central banks did not respond immediately to Reuters’ question regarding the rouble fall and its implications.

Since October, the rouble was under increasing pressure due to Western concerns over Russia’s military buildup in Ukraine. Moscow said that it is able to move its troops within its territory, if necessary.

NATO stated Wednesday that it is willing to discuss arms control with Russia in order to avoid war in Europe. However, Moscow declared the situation “very dangerous”, and said there was no way to move forward.

Russian finance minister also increased state currency purchases to support state coffers during the month ahead.

Sinara Investment Bank stated in a note that the increased FX purchases by the finance ministry will reduce the potential for the rouble to recover. The Russian currency should firm to only 74 against the US dollar by the end the month.

However, the fundamental support for the rouble is maintained by global high commodity prices as well as central bank rate increases at home.

Russian stockindices declined, with a rebound in the, which is a benchmark global for Russia’s primary export to China, at $84.64 per barrel.

Dollar-denominated RTS Index fell 5.5% to 1,524.2 Points. It was 3.5% below its Dec. 24th low at 3,696.6 point, and the lowest MOEX Russian Index index since December 24th.