The Russian Central Bank raises interest rates and seeks to reduce the repercussions of strict sanctions

(Reuters) – Russia’s central bank on Monday raised its key monetary policy rate sharply to 20 percent, a day after announcing a series of measures to support domestic markets, as it scrambled to manage the fallout from harsh Western sanctions in response to the invasion of Moscow. Ukraine.

The bank raised the key interest rate from 9.5% to counter the risks of a devaluation of the ruble and higher inflation, and also ordered companies to sell 80% of their foreign currency earnings. Read more

“The external conditions of the Russian economy have changed significantly,” the central bank said in a statement, adding that the rate hike “will ensure that deposit interest rates rise to the levels required to compensate for increased consumption and inflation risks.”

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Monday’s steps bolster other measures announced on Sunday, which include the central bank’s confirmation that it will resume buying gold in the domestic market, the launch of a borderless repurchase auction, and the easing of restrictions on open foreign currency positions at banks.

It also increased the range of securities that could be used as collateral for loans and ordered market players to reject offers from foreign clients to sell Russian securities. Read more

In its statement on Monday, the bank said Central Bank Governor Elvira Nabiullina will hold a briefing at 1300 GMT.

The moves came after Western allies tightened sanctions on Saturday, took action to remove major Russian banks from the main global payments system SWIFT, and announced other measures to limit Moscow’s use of a $630 billion war fund to undermine sanctions. Read more

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The new set of sanctions is likely to deal a devastating blow to the Russian economy and make it difficult for Russian banks and companies to access the international financial system. The ruble fell nearly 30% to an all-time low against the dollar on Monday.

Do you work in banks?

Russians waited in long queues outside ATMs on Sunday, worried that new Western sanctions over Moscow’s invasion of Ukraine would lead to cash shortages and disrupt payments.

“Banks in Russia have already started operating over the weekend…inflation will immediately increase dramatically and the Russian banking system is likely to be in trouble,” said Jeffrey Halley, senior market analyst at Asia-based OANDA.

Nomura analysts said the West’s new retaliatory measures against Russia are likely to have broader global repercussions.

“These sanctions from the West are likely to harm trade flows out of Russia (about 80% of foreign currency transactions handled by Russian financial institutions are denominated in US dollars), which will also hurt the growth prospects of Russia’s major trading partners including Europe and lead to further pressures. Inflationary inflation and the risk of stagflation, we believe,” analysts wrote in a note to clients.

Energy major BP has opened a new front in the West’s campaign to isolate the Russian economy, with its decision to divest its stake in state oil company Rosneft. (ROSN.MM) At a cost of up to $25 billion, it is the most aggressive move yet by a company in response to Moscow’s invasion of Ukraine. Read more

Russian business operations of other Western companies are also in the spotlight as governments tighten the financial noose on Moscow Read more

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The European Central Bank, which oversees the lenders, said on Monday that many European subsidiaries of Sberbank Russia, which are mostly owned by the Russian government, are failing or likely to fail due to the reputational cost of the war in Ukraine.

financial stability

In several announcements on Sunday, the Russian Central Bank sought to ensure financial stability. It said it would resume buying gold in the domestic market from February 28.

It added that customers of sanctioned banks will not be able to use their bank cards outside Russia, and that cards issued by sanctioned banks will not work on Google Pay or Apple Pay.

It also ordered market players to reject attempts by foreign clients to sell Russian securities, according to a central bank document seen by Reuters.

That could complicate plans for sovereign wealth funds in Norway and Australia, which have said they intend to end exposure to listed Russian companies. Read more

In an effort to inject liquidity into the financial system, the central bank said there would be no limit in the “setting” repurchase auction it plans to hold on Monday, and added that the banking system remained stable after new sanctions targeting Russia’s finances. institutions.

The central bank said bank cards were working as usual and that customers’ funds could be accessed at any time. It said it would significantly increase the range of securities that can be used as collateral for loans from the central bank. Read more

The central bank also said it is temporarily easing restrictions on foreign exchange positions open to banks after the sanctions. It said in a statement that the measure, which allows banks with “external circumstances” to keep their positions above official limits, will be in effect until July 1.

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The central bank said it would continue to monitor changes in currency conditions “in order to ensure the normal functioning of the currency, money markets and financial stability of lending institutions”. Read more

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reporting by the Moscow office; Written by Paritosh Bansal and Shri Navaratnam; Editing by Stephen Coates and Jacqueline Wong

Our criteria: Thomson Reuters Trust Principles.

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