As the Russian invasion of Ukraine continued into yet another day, Russia has taken steps to shore up its tanking economy.
Amid a growing number of economic sanctions, Russia’s Central bank has more than doubled its key policy rate and introduced further capital controls.
The Central Bank of Russia also announced that the stock market will be closed on Monday and that it will announce whether or not the Moscow Stock Exchange will reopen on Tuesday.
Whilst Western nations formulate unprecedented levels of sanctions on Russia over its Ukraine aggression, the main interest rate will soar from 9.5% to 20%, the highest it has been this century as the Russian Central Bank scrambles to counter the risks of the ruble’s sharp depreciation and the threat of higher inflation.
The Bank of Russia (the Central Bank) will provide domestic banks with cash and non-cash liquidity in rubles in order to maintain financial stability after the Ruble plummeted more than 30% to hit a historic low.
With Western sanctions being formulated and enacted, Russians have been queueing at ATM machines since Sunday. A number of Russian banks have been targeted and the central bank has itself also been targeted. Western leaders are seeking to restrict the Central Bank’s ability to deploy $640 billion of forex and gold reserves and cut Russia’s major banks off the SWIFT financial network.
Jeffrey Halley, Asia-based senior market analyst at OANDA said:
“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,”
Nomura also said in a note:
“These sanctions from the West are likely to eventually hurt trade flows out of Russia (around 80% of FX transactions handled by Russian financial institutions are denominated in USD), which will also hurt the growth outlook of Russia’s key trading partners including Europe and lead to greater inflationary pressures and risk of stagflation, we think,”
