Russian ruble plummets as banking system reels from sanctions

The ruble lost more than 30% of its value to trade at 109 to the dollar at 2:30 a.m. ET after earlier dropping 40%. The start of trading on the Russian stock market has been delayed.

The latest barrage of sanctions came on Saturday, when the United States, European Union, United Kingdom and Canada announced they would expel some Russian banks from SWIFT, a global financial messaging service, and “cripple” the assets of the Russian central bank.

President Vladimir Putin’s government has spent the past eight years preparing Russia for tough sanctions by building up a war chest of $630 billion in foreign currency reserves, but its ‘fortress’ economy is now under assault. unprecedented and at least some of that financial firepower is now frozen.

“We will also ban transactions by the central bank of Russia and freeze all its assets, to prevent it from financing Putin’s war,” European Commission President Ursula von der Leyen said in a statement on Sunday.

The currency’s collapse prompted the Russian powerhouse to enact emergency measures on Monday, including a huge hike in interest rates to 20% from 9.5%.

“The external conditions of the Russian economy have changed dramatically,” the bank said in the statement. “This is necessary to support financial and price stability and protect citizens’ savings against depreciation,” the bank added.

Russia is a leading exporter of oil and gas, but many other sectors of its economy depend on imports. As the value of the ruble falls, they will become much more expensive to buy, which will drive up inflation. The crackdown on its main banks and the exclusion of some of them from the SWIFT secure messaging system that connects thousands of financial institutions around the world will also make it more difficult for it to sell for export.

Analysts have warned that the turmoil could lead to a run on Russian banks, as savers try to secure deposits and hoard cash.

“The events of this weekend now mean that no G7 bank will be able to buy Russian roubles, sending the currency into a tailspin, with the end result that we could see a huge inflationary shock unfold in Russia,” he said. Michael Hewson, chief market analyst at CMC. Markets UK said in a note on Monday.

“A run on Russian banks inside the country already seems to be starting, as ordinary Russians fear their credit cards will no longer work,” he added.

The Russian central bank intervened last week in the currency markets to try to support the ruble. And on Friday, it said it was increasing the supply of bills at ATMs to meet increased demand for cash. Russian state news agency TASS reported that several banks had seen an increase in withdrawals since the invasion of Ukraine, including of foreign currency.

“These are the conditions under which the local bank runs begin,” wrote Neil Shearing, chief economist at Capital Economics. “The [Russian central bank] raised interest rates this morning to 20% but other measures (eg limits on deposit withdrawals) are possible later in the day. All of this will accelerate Russia’s economic slowdown — a drop in GDP of [about] 5% now seems likely.”

— Charles Riley, Laura He and Vasco Cotovio contributed reporting.


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