Monday’s drop in the ruble against the dollar was about 30%. It now has a value of less than one US cent. This is after the United States, European Union and United Kingdom announced that they would block certain Russian banks from SWIFT and restrict Russia’s access to its vast foreign currency reserves. It is used to transfer billions of dollars among more than 11,000 banks and financial institutions worldwide.
After Russia’s central banks raised its key interest rates Monday, the ruble gained ground. This was to protect the currency and stop a bank run. It was trading at a record low of 105.27 dollars, down from 84 late Friday.
A weaker ruble can cause inflation to rise, possibly angering Russians whose budgets are already stretched by high prices. It could also increase the strains in Russia’s financial sector.
Economists and analysts believe that a sharp decline in the ruble will lead to a decrease in the standard living standards for average Russians. Russians still depend on many imported goods, and those prices are likely to rise. As their rubles purchase less currency in foreign countries, foreign travel will become more costly. In the next weeks, Russia will face deeper economic troubles if it experiences price shocks or supply-chain problems that cause Russian factories to close due to lower demand.
David Feldman, a professor at William & Mary in Virginia, said that the impact of the new law will ripple through the economy. “Anything imported will see the local currency cost rise. It is impossible to stop this trend without heavy subsidization.
Russian companies could be hit hard if the ruble falls rapidly.
Analysts at TD Securities stated in a research note that the [ruble] has entered a tailspin and that most Russian bonds, regardless of whether they are directly sanctioned, have seen their prices fall to levels suggesting significant default risk.
Americans are barred from transacting
The U.S. Department of Treasury barred Americans Monday from doing business in Russia’s central banking, its ministry of finance, and sovereign wealth fund. This is yet another attempt to isolate Russia’s financial sector.
“This action effectively immobilizes assets of the Central Bank of the Russian Federation located in the United States or by U.S. persons wherever located,” the Treasury Department declared.
Officials from the United States said that Germany, France and the United Kingdom will be joining the effort to target the Russian central bank.
Oxford Economics’ Tatiana Orlova described the actions of partially cutting off some Russian banks from SWIFT and freezing its central bank assets as “crushing policies” and noted in a report that the war in Ukraine is “causing panic among Russian households, businesses and individuals.”
Global financial markets have been affected by the Ukraine crisis. The Moex, Russia’s largest equity market, was closed Monday. According to Nicholas Cawley (strategier at DailyFX), this was an attempt to prevent jittery investors selling their shares.
U.S. stocks opened lower Monday after surged on Friday due to reports that Russian leaders and Ukrainian leaders were meeting this week. Monday’s first direct negotiations between the two countries saw delegates from both countries sit down.
Capital Economics reported that Russia’s gross national product will likely shrink by around 5% due to sanctions.
People are anxious that sanctions will cause a severe economic downturn and have been flocking to ATMs and banks for days. There have been reports on social media about long lines and cash-out machines. Moscow’s public transport department warned residents that they may have problems using Apple Pay, Google Pay, and Samsung Pay to pay fares. VTB, one Russian bank under sanctions, is responsible for card payments in Moscow’s trams, metros, and buses.
Russia will need to help support the banks, declining industries and other economic sectors. However, without hard currencies such as the U.S. dollars and euro, they might have to print more rubles. This could lead to hyperinflation.
Russia’s central banks raised the benchmark interest rate by 20% to stop the ruble’s slide from 8.5% to 20% Monday. This came after a West decision Sunday to freeze Russia’s hard currency reserves. This unprecedented move could have disastrous consequences for Russia’s financial stability.
Are sovereign bond holders going get paid back? “It is now unclear if Russia will be able to access their large stock [foreign currency] reserves (whatever their denomination). In a report to investors, Peter Boockvar, chief investor officer at Bleakley Advisory Group stated that. “With the rubble falling 19% today against the dollar, it is good luck getting your money back if you have a Russian bond denominated in dollars.”
U.S. stocks opened lower Monday after surged on Friday due to reports that Russian leaders and Ukrainian leaders were meeting this week. Monday’s first direct negotiations between the two countries saw delegates from both countries sit down.
Capital Economics reported that Russia’s gross national product will likely shrink by around 5% due to sanctions.
People are anxious that sanctions will cause a severe economic downturn and have been flocking to ATMs and banks for days. There are reports on social media of long queues and cash machines running low. Moscow’s public transport department warned residents that they may have problems using Apple Pay, Google Pay, and Samsung Pay to pay fares. VTB, one Russian bank under sanctions, is responsible for card payments in Moscow’s trams, metros, and buses.
Russia will need to help support the banks, declining industries and other economic sectors. However, without hard currencies such as the U.S. dollars and euro, they might have to print more rubles. This could lead to hyperinflation.
Russia’s central banks raised the benchmark interest rate by 20% to stop the ruble’s slide from 8.5% to 20% Monday. This came after a West decision Sunday to freeze Russia’s hard currency reserves. This unprecedented move could have disastrous consequences for Russia’s financial stability.
Are sovereign bond holders going get paid back? “It is now unclear if Russia will be able to access their large stock [foreign currency] reserves (whatever their denomination). In a report to investors, Peter Boockvar, chief investor officer at Bleakley Advisory Group stated that. “With the rubble falling 19% today against the dollar, it is good luck getting paid back if you have a Russian bond denominated in dollars.”
