(Reuters) – The rouble gained strength on Wednesday following Russia’s announcement that it has halted gas supplies from Bulgaria and Poland. This was in response to the possibility of income tax payments, which is a record for Moscow.

Gazprom, Russia’s energy giant (MCX) stated that it has stopped gas supply to Poland and Bulgaria because they failed to pay gas prices in roubles. This is the Kremlin’s most severe response to the West’s sanctions on Ukraine.

At 0831 GMT the rouble was trading at 76.00 against the euro. This is a 1.1% increase from the previous high of 75.9075 in the past two years.

At 72.82, it was 1 % stronger than the dollar.

Veles Capital wrote in a note, “The suspension of gas supplies for a few European countries could increase geopolitical tensions” and worsen relations between Europe and the United States. This would negatively impact sentiment.

Promsvyazbank analysts warn that corporate income taxes, due to be paid on Thursday, could prevent the greenback from a significant strengthening in relation to the rouble.

Also, the market looks forward to Friday’s rate decision. A Reuters poll revealed that the central bank will likely reduce its key interest rate 200 basis points, to 15% to encourage lending to the economy. This is in response to high inflation.

While lower rates can support the economy with cheaper loans, they also tend to fan inflation and expose the rouble to external shocks.

Trading is subdued now and somewhat less frequent than before the February 24th invasion of Ukraine by Moscow, which saw the deployment of thousands of soldiers into that country. Interbank trading was less favorable. Some banks were willing to purchase dollars at 74.17 Russian rubles, while others sold them at the lower price of 74.83.

Capital controls by the central bank artificially limit movements in the ruble. The economy is now facing high inflation and capital flight, as well as the possibility of default on its debts.

Russian stock indexes are on the rise.

RTS, a dollar-denominated index, was up 2.7% at 1,027.0 points. With 2,371.3 point, the MOEX Russian Index was 2.3% lower.

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