Russia’s central bank raises rates, tries to limit fallout from tough sanctions

Feb 28 (Reuters) – Russia’s central bank raised its key rate sharply to 20% on Monday, a day after announcing a series of measures to support domestic markets, as it struggles to manage the fallout from sanctions harsh Western forces in retaliation for the invasion of Moscow. from Ukraine.

The bank raised the key rate by 9.5% to counter risks of ruble depreciation and rising inflation, and also ordered companies to sell 80% of their foreign currency earnings. Read more

“The external conditions of the Russian economy have changed dramatically,” the central bank said in a statement, adding that the rate hike “will ensure an increase in deposit rates to the levels necessary to compensate for the increase in depreciation and inflation risk.

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Monday’s measures reinforce other measures announced on Sunday, including assurances from the central bank that it would resume buying gold domestically, launch a no-limit buyout auction and ease restrictions on banks’ open currency positions.

It also expanded the range of securities that can be used as collateral to obtain loans and ordered market participants to reject offers from foreign clients to sell Russian securities. Read more

Central Bank Governor Elvira Nabiullina will hold a briefing at 1:00 p.m. GMT, the bank said in its statement on Monday.

The moves came after Western allies stepped up sanctions on Saturday, taking steps to ban major Russian banks from the main global payment system SWIFT and announcing further steps to limit Moscow’s use of a war chest. $630 billion to undermine sanctions. Read more

The new round of sanctions was likely to deal a devastating blow to the Russian economy and make it difficult for Russian banks and companies to access the international financial system. The ruble plunged nearly 30% to an all-time low against the dollar on Monday.

RUN ON THE BANKS?

Russians waited in long queues outside ATMs on Sunday, fearing that new Western sanctions against Moscow’s invasion of Ukraine could cause cash shortages and disrupt payments.

“A bank run has already started in Russia this weekend … and inflation will immediately spike massively, and the Russian banking system is likely to be in trouble,” said Jeffrey Halley, senior market analyst based in Asia at OANDA.

Nomura analysts said the West’s new retaliatory moves against Russia are likely to have wider global implications.

“These sanctions from the West are likely to harm trade flows out of Russia in the long term (about 80% of foreign exchange transactions processed by Russian financial institutions are denominated in USD), which will also harm the growth prospects of major partners. Russia’s trading markets, including Europe and lead to higher inflationary pressures and risk of stagflation, in our view,” the analysts wrote in a note to clients.

Energy giant BP has opened a new front in the West’s campaign to isolate the Russian economy, with its decision to drop its stake in state oil company Rosneft (ROSN.MM) for a cost of up to $25 billion, the most aggressive move ever made by a company in response to Moscow’s invasion of Ukraine. Read more

Russian business operations of other Western companies are also in the spotlight as governments tighten financial screws on Moscow

Several European subsidiaries of Sberbank Russia, majority-owned by the Russian government, are failing or are likely to fail due to the reputational cost of war in Ukraine, the European Central Bank, the lenders’ supervisor, said on Monday.

FINANCIAL STABILITY

The Russian central bank in several announcements on Sunday sought to ensure financial stability. He said he would start buying gold on the domestic market again from February 28.

He added that customers of sanctioned banks would not be able to use their bank cards outside of Russia, and cards issued by sanctioned banks would not work on Google Pay or Apple Pay.

He also ordered market participants to reject attempts by foreign clients to sell Russian securities, according to a central bank document seen by Reuters.

That could complicate the plans of sovereign wealth funds in Norway and Australia, which have said they plan to reduce their exposure to companies listed in Russia. Read more

In a bid to pump money into the financial system, the central bank said there would be no limits at a ‘fine-tuning’ auction it plans to hold on Monday and added that the banking system remained stable after the new sanctions aimed at the Russian financial sector. establishments.

The central bank said bank cards were working normally and customer funds could be viewed at any time. He said it would greatly expand the range of securities that can be used as collateral to secure central bank loans. Read more

The central bank also said it was temporarily easing restrictions on banks’ open currency positions after the sanctions. The measure, allowing banks suffering from “external circumstances” to maintain positions above official limits, will be in place until July 1, he said in a statement.

The central bank said it would continue to monitor changes in currency positions “to ensure the normal functioning of money and money markets and the financial stability of credit institutions.” Read more

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Moscow office report; Written by Paritosh Bansal and Shri Navaratnam; Editing by Stephen Coates and Jacqueline Wong

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