The ruble fell nearly 30 percent in early Asian trading, dropping as low as 119 per U.S. dollar.
In a statement, the Bank of Russia said the hike, one of the largest one-time increases in recent memory, was due to a drastic change in “external conditions for the Russian economy.”
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“The increase of the key rate will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risks,” the bank said. “This is needed to support financial and price stability and protect the savings of citizens from depreciation.”
Kremlin spokesman Dmitry Peskov said Monday that Russian President Vladimir Putin would meet with central bank chief Elvira Nabiullina and members of the government to discuss the crisis, as officials claimed Russia could handle the impact of sanctions.
Earlier, the bank had planned to open trades starting at 3 p.m. Moscow time. In a statement around midday local time, though, it said it would not open the Moscow Stock Exchange or derivatives markets at all on Monday “due to the current situation.” It said it would announce whether, and when, markets would reopen on Tuesday at 9 a.m. Moscow time.
In an attempt to stem the market rout, Russia’s central bank also banned nonresidents from selling securities. But without access to its overseas reserves, Russia’s central bank “can’t defend the [ruble] from free-fall,” Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, said in a Monday note.
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“Russia’s central bank (CBR) has been sanctioned with the intention of denying it unfettered access to its ($643bn worth) of [foreign exchange] reserves. If successful, then Russia becomes impotent in defending the Rouble,” Attrill said.
Deutsche Bank analysts in a note on Sunday wrote that the freeze “could reach the majority of Russia’s reserves” but that the effect is dependent on the scope of the sanctions.
“Such an action would be expected to have significant negative effects for the Russian economy: undermining domestic financial stability and the fungibility of the domestic monetary base; effectively freezing past accumulated wealth; and most importantly removing the most important source of external funding needs for trade, capital flows or otherwise,” analysts George Saravelos, Oliver Harvey and Peter Sidorov said in the note.
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The latest available data shows that most of Russia’s holdings of foreign currency “are electronically deployed in Western financial institutions, either via central bank deposits or indirect via commercial banks,” they wrote. “Allocation may have shifted since [June], but even indirect ownership of USD or EUR through foreign banks ultimately requires a correspondent banking relationship with a Western institution.”
The United States and its Western allies stepped up punitive financial measures Saturday, announcing they would move to bar several major Russian banks from SWIFT, crack down on Russian oligarchs and prevent Russia’s central bank from bailing out the domestic economy.
The moves led Russians to crowd ATMs in a desperate bid to withdraw cash and sparked a furious response from Putin, who called the measures “illegitimate” and ordered his nuclear forces to a higher state of alert.
Peskov, the Kremlin spokesman, on Monday said that it was “absurd and very short-sighted” for the United States, European Union and United Kingdom to impose sanctions on Putin as a head of state, but that Putin was “rather indifferent” to the sanctions because he had no bank deposits and limited assets.
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An analysis late last year of the Pandora Papers, more than 11.9 million documents revealing the global flows of money, property and other assets concealed in the offshore financial system, conducted by The Washington Post and other media outlets, adds credence to the claims from U.S. intelligence that indiuals close to Putin hold hundreds of millions of dollars in assets for him.
Russian Prime Minister Mikhail Mishustin said, according to Russian news agency Interfax, that authorities had been preparing for sanctions from the United States, the European Union and others. “Therefore, we prepared and took a number of decisions in order to mitigate the consequences as much as possible for economy, and for people, and in terms of cash flow, and in terms of projects to replace imported components,” he said.
Timsit reported from London and Pannett from Sydney. Greg Miller contributed to this report.
