The Russian central bank will start intervention on the currency market, it said on Thursday, as the ruble crashed to an all-time low after President Vladimir Putin authorised what he called a special military operation in Ukraine.
After weeks of denying plans to attack neighbouring Ukraine, Russian forces fired missiles at several cities in Ukraine and landed troops on its coast on Thursday.
Russia’s currency, bonds and stocks all tanked, prompting the central bank to announce its first foreign exchange intervention designed to shore up financial stability since 2014, the year when Russia annexed Crimea from Ukraine.
The ruble skidded to an all-time low of 89.60 against the dollar and neared a crucial threshold of 100 versus the euro. It was at around 70 to the dollar and 81 to the euro before the recent round of geopolitical tensions between Moscow and the West started to escalate in October.
“To stabilise the situation on the financial market, the Bank of Russia decided to start interventions on the currency market,” the bank said on Thursday.
Markets are now bracing for the impact of fresh and harsh Western sanctions to punish Moscow for its invasion of Ukraine.
“The sanctions hit is going to be significant, unlike the soft sanctions imposed on Tuesday/Wednesday,” said Renaissance Capital.
The Bank of Russia has also decided to expand the list of securities it accepts as collateral in exchange for liquidity it provides, and will hold operations to offer extra liquidity to the banking sector.
The other tool the central bank has at hand to ease downside pressure on the rouble is its key interest rate. The bank is expected to continue monetary tightening as it struggles to rein in inflation, which is set to get a boost from the falling ruble.
(Reporting by Elena Fabrichnaya and Andrey Ostroukh; Editing by Kim Coghill and Kenneth Maxwell)