Ukraine crisis: Russia hikes rates by 20%, rouble plunges nearly 30%

Moscow, Russia's central bank more than doubled its key policy rate on Monday and introduced some capital controls as it scrambled to shield the economy from unprecedented Western sanctions that sent the rouble tumbling to record lows.
 
The main interest rate will rise to 20 per cent, its highest this century, from 9.5 per cent to counter the risks of the rouble's rapid depreciation and higher inflation, which threaten Russians’ savings.
 
“External conditions for the Russian economy have drastically changed,” the central bank said, adding that the hike ‘will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risk”.
 
The monetary authority also ordered companies to sell 80 per cent of their foreign currency revenues, increased the range of securities that can be used as collateral to get loans and temporarily banned Russian brokers from selling securities held by foreigners. It did not specify which securities the ban applies to.
 
The emergency measures put the central bank on the frontline defending Russia against a campaign by Western allies to isolate it economically following Moscow's invasion of Ukraine.
 

The central bank has itself been targeted, with the West seeking to restrict its ability to deploy $640 billion of forex and gold reserves and cut Russia's major banks off the SWIFT financial network, making it hard for lenders and companies to make and receive payments.
 
The rouble plunged nearly 30 per cent to an all-time low versus the dollar on Monday. The stock market and derivatives market remained closed.
 
Britain on Monday banned any transactions with the Russian central bank, finance ministry and wealth fund, and said it would prevent Russian companies from issuing transferable securities and money market instruments in the UK.
 
Monday's steps by the Russian central bank bolster other measures announced on Sunday, including an assurance that the central bank would resume buying gold on the domestic market. It will also launch a repurchase auction with no limits and ease restrictions on banks’ open foreign currency positions.
 
Finance Minister Anton Siluanov said the government was ready to strengthen commercial banks' capital base if required.
 
Run on banks?
 
Russians queued outside ATMs on Sunday, worried the sanctions could trigger cash shortages and disrupt payments. “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,” said Jeffrey Halley, Asia-based senior market analyst at OANDA. Nomura analysts said in a note to clients that fresh reprisal measures by the West against Russia were likely to have wider global implications.
 
“These sanctions from the West are likely to eventually hurt trade flows out of Russia, 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,” they wrote.

Russia bans foreigners from selling securities

Bloomberg

The Bank of Russia has banned brokers from selling securities by non-residents starting today in a bid to shield the nation’s assets from sweeping Western sanctions that include penalties on the central bank.

The central bank said the currency and repo markets would open three hours late at 10 am local time, while it will assess whether to open other markets. If a decision to open is made, it will be at 3 pm Moscow, according to a website statement. The regulator didn’t specify which assets the ban applied to. 

The limits represent the most forceful measure taken by Russia after the latest round of sanctions, with the US and the European Union agreeing to potentially block access to much of the $640 billion the country’s central bank has built up to reduce the Kremlin’s reliance on international markets. 

“Russian authorities have to prevent fire-sales of Russian securities to prevent panic,” said Commerzbank AG strategist Ulrich Leuchtmann. 

It’s “something which is certainly harmful in the long run, but which Russian authorities seem to prefer given the risk of an even more significant ruble collapse.”

S&P Global Ratings lowered Russia’s credit score below investment grade on Friday, while Moody’s Investors Service – which rates Russia one notch above junk – put the nation on review for a downgrade. Additional measures to exclude some Russian banks from the SWIFT messaging system could further choke up the country’s banking system and the central bank announced new steps on Monday to support lenders. 

The restrictions will extend to transactions on the Moscow Exchange but won’t work elsewhere, including the American depositary receipt market, according to Norvik Bank PJSC’s Mikhail Kotlov. “That’s why there will be two markets,” he said on Twitter.