The Russian currency falls after Western countries on Saturday I agreed to impose crippling sanctions on the country’s financial sector in retaliation for its invasion Ukraine.
The ruble fell nearly 30% against the dollar on Monday – putting its value at less than 1 US cent – after the US, EU and UK announced steps to block some Russian banks from the international payment system SWIFT and restrict Russia’s use of its massive system. foreign currency reserves. The system is used to move billions of dollars around more than 11,000 banks and other financial institutions around the world.
The ruble regained ground after Russia’s central bank sharply raised its key interest rate on Monday to prop up the currency and prevent a bank run. But it was trading at a record low of 105.27 per dollar, down from around 84 per dollar late Friday.
A weaker ruble could cause inflation to rise, which could irritate Russians whose budgets will be drained by higher prices. It will also increase pressure on the Russian financial system.
Economists and analysts said that a sharp depreciation of the ruble will mean a decrease in the standard of living of the average Russian citizen. Russians are still dependent on a large number of imported goods and the prices of these goods are likely to rise significantly. Traveling abroad will become more expensive because rubles buy less currency abroad. The deeper economic turmoil will come in the coming weeks if price shocks and supply chain issues cause Russian factories to close due to lower demand.
“It’s going to ripple through their economy pretty quickly,” said David Feldman, professor of economics at William & Mary in Virginia. “Anything that is imported will see the domestic cost of the currency rise. The only way to stop it is going to be the massive subsidy.”
The rapid depreciation of the ruble can lead to criticism of Russian companies that need to issue debt to raise capital.
“The [ruble] Analysts at TD Securities said in a research note that most Russian bonds, whether directly penalized or not, have seen prices fall sharply to levels indicating significant risk of default.
Americans are barred from doing business
In another move to isolate the Russian financial system, the US Treasury on Monday banned Americans from doing business with the Russian Central Bank, the Ministry of Finance and Russia’s sovereign wealth fund.
“This action effectively freezes any assets owned by the Central Bank of the Russian Federation that are held in the United States or to American persons, wherever they are located,” Treasury Department announce.
US officials have said that Germany, France, the United Kingdom, Italy, Japan, the European Union and other countries will participate in targeting the Russian Central Bank.
The moves to partially cut off some Russian banks from the Swift system and freeze central bank assets as “overwhelming policies,” Tatiana Orlova of Oxford Economics described in a report that the war in Ukraine was “causing panic among Russian households and businesses.”
The Ukrainian crisis caused turmoil in global financial markets. The main Russian stock market, Moex, remained closed on Monday. This appears to be an attempt to prevent nervous investors from dumping their shares, according to Nicholas Cooley, a strategist at DailyFX.
after rising on Friday In light of reports that Russian and Ukrainian leaders will meet this week, US stocks are set on Monday to open lower. Delegates from the two countries sat down to attend their wedding ceremony First direct negotiations Since Russia launched its invasion five days ago.
Capital Economics estimated in a report that Russia’s gross domestic product is likely to shrink by about 5% as a result of the sanctions on the country’s economy.
People who fear the sanctions will deal a severe blow to the economy have been flocking to banks and ATMs for days, with reports on social media of long lines and machines running out of money. Moscow’s Public Transport Administration warned city residents over the weekend that they could face problems using Apple Pay, Google Pay and Samsung Pay to pay fares because VTB, one of the Russian banks facing penalties, handles card payments on Moscow metros, buses and trams. .
The Russian government will have to step in to support declining industries, banks and economic sectors, but without access to hard currencies such as the US dollar and the euro, it may have to print more rubles. It’s a move that can quickly turn into hyperinflation.
To stem the ruble’s decline, the Russian Central Bank on Monday raised its benchmark interest rate to 20% from 8.5%. It came on the heels of a Western decision on Sunday to freeze Russia’s hard currency reserves, an unprecedented move that could have severe consequences for the country’s financial stability.
“It is now uncertain whether Russia can even get its hands on its huge stockpile of [foreign exchange] “Regardless of the category), will sovereign bondholders get their money back?” Peter Bokfar, chief investment officer at Bleakley Advisory Group, said in a report geared to investors. With the rubble down 19% today to a new record low against dollars, good luck if one holds Russian dollar-denominated bonds.”
The ruble lost much of its value in the early 1990s after the end of the Soviet Union, with inflation and devaluation prompting the government to dump three zeros from the ruble currencies in 1997. Then came further depreciation after the 1998 financial crisis in which many depositors lost their savings and down Another in 2014 due to low oil prices and sanctions imposed after Russia seized Ukraine’s Crimea.
It was not clear exactly what Russia’s share of the estimated $640 billion in hard currency, some of which is held outside Russia, will be decided. European officials said at least half of them would be affected. This significantly increased pressure on the ruble by undermining the financial authorities’ ability to support it by using reserves to purchase rubles.