The Bank of Russia raised its key interest rate to the highest in almost two decades and imposed some controls on the flow of capital in a bid to shield the economy from the impact of sweeping Western sanctions that include penalties on the regulator itself.
The interest rate was to increase from 9.5 percent to 20 percent, the central bank said in a statement before ruble trading was due to open at 10am yesterday.
Effective yesterday, it also temporarily banned brokers from selling securities held by foreigners on the Moscow Exchange, without specifying which securities the ban applies to. Authorities also introduced mandatory hard-currency revenues sales for exporters.
Photo: AFP
The emergency steps represent the most forceful measures taken by Russia after the latest round of sanctions, with the US and the EU agreeing to potentially block access to much of the US$640 billion the Bank of Russia has built up to protect the economy.
Russia’s invasion of Ukraine has spurred a flight from the nation’s markets, and the ruble was 26 percent weaker in offshore trading yesterday as market makers from Sydney to Hong Kong pulled back. It dropped 8 percent at the open on the Moscow Exchange, immediately hitting the trading limit of 90 per US dollar.
“Russian authorities have to prevent fire-sales of Russian securities to prevent panic,” Commerzbank AG strategist Ulrich Leuchtmann said.
It is “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,” he said.
S&P Global Ratings on Friday lowered Russia’s credit score below investment grade, 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 yesterday announced new steps to support lenders.
The restrictions are to extend to transactions on the Moscow Exchange, but would not work elsewhere, including the American depositary receipt market, Norvik Bank PJSC’s Mikhail Kotlov said.
“That’s why there will be two markets,” he said on Twitter.
Separately, Europe froze Sberbank of Russia PJSC’s main businesses in the bloc after regulators determined they were likely to fail in the wake of sanctions imposed in response to Russia’s invasion of Ukraine.
The Single Resolution Board, which handles European lenders that run into trouble, suspended payments, enforcement and termination rights to three Sberbank divisions until the end of today.
That came after the European Central Bank (ECB) determined that Austria-based Sberbank Europe AG and its subsidiaries in Croatia and Slovenia probably would not be able to pay their debts or other liabilities as they fall due.
Sberbank Europe and its subsidiaries “experienced significant deposit outflows as a result of the reputational impact of geopolitical tensions,” the ECB said in a statement. “This led to a deterioration of its liquidity position. And there are no available measures with a realistic chance of restoring this position at group level and in each of its subsidiaries within the banking union.”
Sberbank Europe has 13.6 billion euros (US$15.2 billion) of assets, and a combined 6.8 billion euros in the banking union entities in Austria, Croatia and Slovenia, the Single Resolution Board said.
Sberbank’s European subsidiary said it was cooperating with regulators and it was part of deposit insurance plans in all countries of operation.
“We are making every effort, and fully support authorities in the use of their powers so that they can master this unprecedented situation,” Sberbank Europe CEO Sonja Sarkoezi said in a statement.
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