The ruble plunged to a record low in Moscow on Wednesday of 110 to the U.S. dollar, and the stock market remained closed as Russia’s financial system staggered under the weight of Western sanctions imposed over Moscow’s invasion of Ukraine.
The ruble fell 4.7 per cent to 106.02 against the U.S. dollar in Moscow trade, earlier hitting 110.0, a record low. It has lost about a third of its value against the dollar since the start of the year.
It had shed 2.6 per cent to finish the day at 115.40 to the euro.
“The ruble volatility remains extremely high which could be caused by instability of forex sales by exporters along with still increased levels of stress of market players and households in particular,” Raiffeisen said in a note.
For the third day in a row, the ruble was weaker outside Russia, trading at 112 to the dollar on the EBS electronic trading platform, but still off an all-time low of 120 hit on Monday.
Russia has responded by doubling interest rates to 20 per cent and telling companies to convert 80 per cent of their foreign currency revenues on the domestic market as the central bank, or CBR, which is now under Western sanctions, has stopped foreign exchange interventions.
Get weekly money news
The weak ruble will hit living standards in Russia and fan already high inflation, while Western sanctions are expected to create shortages of essential goods and services such as cars or flights.
Many international companies have announced plans to exit Russia, while the country’s credit ratings are coming under pressure as a result of the crisis.
Credit rating agency Moody’s said: “The placement of Russia’s sovereign ratings on review for downgrade was triggered by Russia’s further military operation in Ukraine which started on 24 February 2022, and reflects the negative credit implications for Russia’s credit profile from the additional and more severe sanctions being imposed.”
JP Morgan said there was a deep recession in the making for Russia and the bank was re-assessing its regional macro forecasts.
“The most recent measures targeting the CBR have completely changed the picture,” JP Morgan said.
“Russia’s large current account surplus could have accommodated large capital outflows, but with accompanying CBR and SWIFT sanctions, on top of the existing restrictions, it is likely that Russia’s export earnings will be disrupted, and capital outflows will likely be immediate.”
Several Russian banks have been barred from the SWIFT global financial network that facilitates transfers between banks.
As households and businesses in Russia have rushed to convert the falling ruble into foreign currency, banks raised rates for foreign currency deposits.
Russia’s largest lender Sberbank is offering to pay four per cent on deposits of up to US$1,000, while the largest private lender Alfa Bank is offering eight per cent on three-month dollar deposits. For ruble deposits, Sberbank offers a 20 per cent annual return.
Sberbank said on Wednesday it was quitting almost all European markets, blaming big cash outflows and threats to its staff and property, after the ECB ordered the closure of its European arm.
Moscow calls its actions in Ukraine a “special operation” that it says is not designed to occupy territory but to destroy its southern neighbor’s military capabilities and capture what it regards as dangerous nationalists.
Comments