Russia’s central bank has raised its key interest rate from 9.5% to 20% in an attempt to shore up the rouble after it plunged to a record low.
The currency plummeted after Western nations imposed new sanctions on the country for its invasion of Ukraine.
The rouble was down nearly 30% against the US dollar at one point, dropping as low as 119 per dollar in early Asian trading, passing its previous low of 90 roubles per dollar, before later recovering slightly to 109 roubles.
Image: Rouble-dollar chart 28/2/2022The Moscow Exchange said the start of foreign exchange and money market trading on Monday would be delayed. The stock market remained closed.
“External conditions for the Russian economy have drastically changed,” the central bank said in a statement.
Advertisement“The increase of the key rate will ensure a rise in deposit rates to levels needed to compensate for the increaseddepreciation and inflation risks.
“This is needed to support financial and price stability and protect citizens’ savings from depreciation.”
More on Russia Related Topics: RussiaUkraineIt comes after tough financial sanctions announced by Western nations, including the UK, European countries, the US, and joined by Japan overnight.
These include blocking some Russian banks from SWIFT – a system which allows around 11,000 of the world’s financial institutions to communicate and authorise payments.
Other restrictions are aimed at the more than $600bn in reserves held by Russia’s central bank, with the intention of preventing any support for the struggling rouble.
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Britain’s Chancellor Rishi Sunak said on Monday that the measures “demonstrate our determination to applysevere economic sanctions in response to Russia’s invasion of Ukraine”.
The UK government said it would “immediately take all necessary steps to bring into effect restrictions to prohibit any UK natural or legal persons from undertaking financial transactions involving the CBR [Russia’s central bank], the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation”.
In a note to clients, JP Morgan said it expected Russia’s economy to shrink by 20% in the second quarter following the intensified sanctions.
“If these new sanctions are indeed imposed, the impact on the Russian economy would be severe,” analyst Jahangir Aziz said.
“The two pillars of the economy even in the midst of slowing growth, rising inflation, and high interest rates were the ‘fortress’ FX reserves of CBR and Russia’s current account surplus. Not anymore.”
Photos showed Russians queueing to withdraw money in some cities, worried about cash shortages, despite the Russian Central Bank calling for calm.
Some analysts said lenders in the country have only limited time before they face very serious problems.
Jeffrey Halley, Asia-based senior market analyst at OANDA, told Reuters: “A bank run has already started in Russia over the weekend… and inflation will immediately spike massively, and the Russian banking system is likely to be in trouble.”
Analysts at Rabobank said the sanctions on currency reserves took away what little support the rouble had, predicting a “complete collapse” in the currency today.
Ray Attrill, head of FX strategy at National Australia Bank, also said the rouble’s collapse “appears imminent”, but others were more cautious, with Peter Kinsella, London-based global head of FX strategy at UBP only going as far as saying he expected the currency to “weaken quite severely”.
2:11 Boris Johnson: ‘Putin needs to withdraw his war machine’In other developments:
• Russian President Vladimir Putin ordered that Russia’s nuclear deterrent forces be put on high alert, blaming “aggressive statements” by Western countries
• Blasts were heard in Ukraine’s capital Kyiv and its second-largest city Kharkiv overnight. Kyiv’s mayor said the city was surrounded and there was now no way out for civilians
• The UN’s two major bodies – the 193-nation General Assembly and the 15-member Security Council – will hold separate meetings later today to discuss the invasion
3:06 Will sanctions hurt Russia?• Missiles hit a radioactive waste disposal site in Kyiv but there were no reports of damage or the release of radioactive material
• Reports in a number of news outlets, including Kyiv Independent, said that paratroopers from Russia’s ally Belarus could soon be deployed to fight against Ukraine
• Belarus approved a new constitution in a referendum which would ditch its non-nuclear status, possibly paving the way for nuclear weapons on Belarusian soil for the first time since the country gave them up after the fall of the Soviet Union. The West has said it does not accept the referendum result
• The European Union said it would close its airspace to Russian airlines, as well as funding weapons for Ukraine