Ukraine conflict: Russia doubles interest rate after rouble slumps

 

• In an effort to stem a 30 percent decline in the value of its currency, Russia has more than doubled its interest rate.

• As the rouble fell under new Western sanctions, the Bank of Russia upped the rate to 20% from 9.5 percent.

• The rouble's depreciation reduces the currency's purchasing power and threatens to wipe away ordinary Russians' savings.

• In Moscow, there were photos of long lines at cash machines as people withdrew money.

• Russia's central bank issued a calm appeal over the weekend, amid fears that fresh financial sanctions might ignite a run on the country's banks. It claimed to have "all of the resources and tools necessary to ensure financial stability."

• There would be too many people seeking to withdraw money from Russian banks if there was a bank run.

Videos on social media appeared to show long lines building at cash machines and money exchanges in Moscow, with people concerned that their bank cards might stop working or that cash withdrawal limits would be imposed.

It came as the UK, the US, and the EU shut Russia's banks off from Western financial markets, forbidding transactions with the central bank, state-owned investment vehicles, and the finance ministry.

The measures indicated the UK's "commitment to enforce severe economic sanctions in reaction to Russia's invasion of Ukraine," according to Chancellor Rishi Sunak.

Russia has around $630 billion (£470 billion) in reserves, a savings account built up as a result of rising oil and gas prices.

However, because much of this money is held in foreign currencies such as the dollar, euro, and sterling, as well as gold, a Western embargo on dealing with Russia's central bank prevents Moscow from getting its hands on it.

'Economic pariah'

Attempts to suffocate Russia's finances, on the other hand, have sent shockwaves through the financial and corporate worlds, including:

• The cost of gas for delivery over the next few months has risen by 24%

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• Fears over financial stability caused European markets to fall, with London's FTSE 100 down more than 1% and Paris and Frankfurt down almost 2%.

• Crude oil prices surged 5.4 percent to $103 per barrel, while the dollar and gold rose as investors sought safer investments.

• BP's stock dropped 7% after the company announced it will depart Russian oil and gas activities at a cost of up to $25 billion.

• Equinor, the majority-owned energy company in Norway, has begun to divest its joint ventures in Russia.

• Wheat prices have risen for the first time in a decade, owing to supply concerns from Russia and Ukraine.

"It appears like Russia is progressively becoming an economic pariah, further isolated from the global financial system," Will Walker-Arnott, senior investment manager at Charles Stanley, told the BBC's Today programme.

The exclusion of some Russian banks from the international payments system Swift is the most severe sanction imposed on Moscow in response to the Ukraine crisis to yet.

Russia's central bank's assets will be frozen as well, limiting the country's ability to access its foreign reserves.

Russia's vital oil and gas exports are heavily reliant on the Swift system.

According to a joint statement, the goal is to "further isolate Russia from the international financial system."

The European Central Bank (ECB) announced on Monday that numerous European subsidiaries of Sberbank Russia, which is majority owned by the Russian government, are failing or are soon to collapse as a result of the war in Ukraine's reputational damage.

Sberbank Europe AG, which had total assets of €13.64 billion (£11.4 billion) at the end of last year, as well as its Croatian and Slovenian subsidiaries, has experienced a rapid deposit outflow in recent days and is likely to default on its debts or other obligations, according to the European Central Bank.