The ruble has collapsed this Monday in the Forex market by 27% against the dollar and the euro. The Bank of Russia, in its capacity as financial market supervisor, has decided to intervene in the country's capital markets following the package of economic sanctions announced by Western powers over the weekend, which include the expulsion of certain Russian banks from the Swift system. or the freezing of central bank assets.
What is Swift and what does it mean to leave Russia out of its payment system
Russia's central bank doubled interest rates in a bid to stabilize the country's financial markets after unprecedented Western sanctions sent the ruble down 27.02% to 119.8 euros per ruble. In the case of the dollar, this is a record drop since at least 1993 and in the case of the euro it is the biggest drop since at least 1994. The regulator raised its main interest rate to 20% from 9.5% in a emergency decision, stating that "external conditions for the Russian economy have changed drastically".
The exchange rate of the ruble began to fall in the face of the military offensive launched last Thursday by Russia in Ukraine. That day the Moscow Stock Exchange plummeted more than 33%. In a first movement, several Russian banks and sovereign debt were sanctioned, and later it was decided to exclude some financial entities from SWIFT.
The regulator has ordered brokers operating in Russia to stop any sale of securities belonging to non-residents of the country, thus preventing foreign investors from leaving the Russian financial market.
The country's central bank reported on Sunday that it is capable of maintaining the country's financial stability despite the freezing of its international assets announced the day before by the United States, the European Union, Canada and the United Kingdom, in one of the sanctions harshest received by Russia since its invasion of Ukraine began. These sanctions paralyze a good part of the 600,000 million euros in gold and foreign currency of the monetary authority.
Queues at Russian ATMs
Despite the messages from the Russian central bank, the reality is that Russian citizens have formed long queues since the weekend to withdraw money from ATMs, since the central bank lacks an obvious mechanism to stabilize its economy and its currency. .
"Simply put, Russia's ability to transact with any financial institution globally will be severely impaired, because most international banks in any jurisdiction use Swift," Deutsche Bank analyst George Saravelos wrote in a note. to the clients.
"Money markets could see some tightening of funding conditions this week due to the uncertain impact of the asset freeze on global liquidity. The European Central Bank, Federal Reserve and other central banks would be expected to step in to provide a powerful backstop if needed, and we wouldn't rule out inter-meeting announcements," the Deutsche Bank analyst said.
Last Friday, the rating agency S&P Global cut the Russian debt rating to the "junk" category, underlining the risk that the military assault on Ukraine could prove even more profoundly damaging to the country's financial markets.
The economic consequences for the Russians are obvious. "The EU, Britain and the US are freezing the assets of Russian central banks, which means they cannot intervene in the currency markets. The list of airspace bans, asset freezes and travel bans on people and Russian companies is too long to list. Inflation is going to skyrocket immediately and the Russian banking system is going to be in trouble. None of this may bother Putin, but his soldiers have taken a nearly 50% pay cut since he started the war in dollar terms," explains Oanda analyst Jeffrey Halley.