The exchange rate of the Russian ruble plunged by more than 30 percent on Monday morning, in response to heavy sanctions that Western countries imposed on Russian banks and the Russian central bank on Saturday. Around noon, 117 rubles went into a US dollar, a record low.
Russia on Monday raised interest rates from 9.5 percent to 20 percent to defend the ruble’s exchange rate, and introduced capital controls to prevent an exodus of foreign currencies.
The Russian stock exchange was closed on Monday. It is unclear when it will reopen. In London, where Russian stocks are traded, the share price of Sberbank fell by 77 percent and Gazprom by 62 percent. Oil companies Lukoil and Rosneft lost 69 and 46 percent respectively. British oil company BP gave up its 20% stake in Rosneft this weekend.
In the EU, stock prices fell by an average of 2 to 3 percent. The banking sector in particular suffered major losses. In Amsterdam, the AEX index lost 1.7 percent. More than 10 percent went off from ING, almost 8 percent from ABN Amro. The worst-hit bank in the EU was Austria’s Raiffeisenbank, which has major stakes in Russia and fell by a fifth.
foreign exchange reserves
In particular, denying access to the foreign exchange reserves of the Russian central bank abroad makes defending the ruble’s exchange rate virtually impossible. On Friday, the central bank intervened with support purchases of the currency. But because dollars or euros have to be sold for that, such an action is now problematic. In the informal circuit in Russia, the ruble has already fallen by 70 percent.
It is still unclear exactly how much of Russia’s foreign exchange reserves are in countries that participate in the sanctions. According to Capital Economics, an economic think tank, this would be 40 percent of Russia’s $631 billion in cash reserves.
Major Russian banks have been denied access to the international payment system Swift, but Gazprombank could be spared, because otherwise European payments for Russian energy supplies become impossible.
Also read: Is the West really hurting Putin this time?
Gas jumped from a $90 per megawatt hour slot on Friday to a $120 peak, standing at $115 by noon. That is almost 30 percent higher than Friday, but just below the peak of last Thursday. The same applies to the price of oil, which rose to more than $98 a barrel on Monday, but remained below Thursday’s peak of $105. The prices of goods such as grain and palladium rose. Russia and Ukraine are among the largest grain exporters in the world.
Central bank
On the financial markets, the big question was whether the United States would put the Russian central bank on the list of so-called specially designated nationals move. Then American banks or companies are no longer allowed to do business with it at all. If the central bank is subsequently added to the so-called ‘secondary sanctions list’, foreign banks and companies, anywhere in the world, will no longer be allowed to transact with it, under penalty of exclusion from the American market. Then foreign exchange reserves in countries that do not formally participate in the sanctions will also become practically inaccessible.
There were slight price increases on Monday for the investments that are considered a refuge: gold, the US dollar and western government bonds. Due to the price increase, the effective interest rate on the Dutch ten-year government bond fell to 0.4 percent. That is the lowest level in two weeks.
Russia’s exclusion from Swift could affect the financial system as Western banks suddenly miss payments from Russia. Economists at the bank Credit Suisse said they could not rule out the possibility that Western central banks would have to temporarily close such holes with injections of dollars and euros into the financial system, similar to the financial crisis of 2008.