Russia raises rates and introduces capital controls to defend against sanctions

Feb 28 (Reuters) – Russia’s central bank more than doubled its key rate on Monday and introduced capital controls as it sought to shield the economy from unprecedented Western sanctions that have sent the ruble to low levels. record levels.

The main interest rate will drop from 9.5% to 20%, its highest of the century, to counter the risks of rapid depreciation of the ruble and rising inflation, which threaten Russian savings. [nL1N2V30GI ]

“The external conditions of the Russian economy have changed dramatically,” the central bank said, adding that the hike “will ensure deposit rates rise to the levels needed to offset the increased depreciation and inflation risk.” .

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The monetary authority also ordered companies to sell 80% of their earnings in foreign currency, expanded the range of securities that can be used as collateral to obtain loans and temporarily banned Russian brokers from selling securities held by foreigners. He did not specify which securities the ban applies to. Read more

Bank of Russia Governor Elvira Nabiullina will hold a briefing at 13:00 GMT.

The emergency measures put the central bank on the frontline of defending Russia against a campaign by Western allies to isolate it economically after Moscow invaded Ukraine.

The central bank itself has been targeted, as the West seeks to restrict its ability to deploy $640 billion in foreign exchange and gold reserves and cut Russia’s major banks from the SWIFT financial network, making it difficult for lenders and businesses to make and receive payments. Read more

The ruble plunged nearly 30% to an all-time low against the dollar on Monday. The stock market and the derivatives market remained closed.

Britain on Monday banned all dealings with Russia’s central bank, finance ministry and wealth fund, and said it would prevent Russian companies from issuing transferable securities and money market instruments in the UK. United. Read more

The actions taken by the Russian central bank on Monday reinforce other measures announced on Sunday, including assurances that the central bank would resume buying gold domestically. It will also launch a limitless buyout auction and ease restrictions on banks’ open currency positions.

Finance Minister Anton Siluanov said the government was ready to strengthen the capital base of commercial banks if necessary.

RUN ON THE BANKS?

Russians lined up at ATMs on Sunday, fearing the sanctions could cause cash shortages and disrupt payments.

“A bank run has already started in Russia this weekend … and inflation will immediately spike massively, and the Russian banking system is likely to be in trouble,” said Jeffrey Halley, senior market analyst based in Asia at OANDA.

Nomura analysts said in a note to clients that further retaliatory moves by the West against Russia were likely to have wider global implications.

“These sanctions from the West are likely to harm trade flows out of Russia in the long term (about 80% of foreign exchange transactions processed by Russian financial institutions are denominated in USD), which will also harm the growth prospects of major partners. Russia’s trade markets, including Europe and lead to greater inflationary pressures and risk of stagflation, we believe,” they wrote.

Energy giant BP has opened a new front in the West’s campaign to isolate the Russian economy.

Its decision to shed its stake in state oil company Rosneft (ROSN.MM) at a cost of up to $25 billion is the most aggressive move ever by a company in response to Russia’s actions in Ukraine, what Moscow calls a “special operation”. Read more

Russian business operations of other Western companies are also in the spotlight. Read more

Several European subsidiaries of Sberbank Russia, majority-owned by the Russian government, are failing or at risk of failing due to the reputational cost of war in Ukraine, the European Central Bank, the lenders’ supervisor, said on Monday.

FINANCIAL STABILITY

The Russian central bank in several announcements on Sunday sought to ensure financial stability. He said he would start buying gold on the domestic market again from February 28.

Customers of sanctioned banks would not be able to use their bank cards outside of Russia, he said, and cards issued by sanctioned banks would not work on Google Pay or Apple Pay.

He also ordered market participants to reject attempts by foreign clients to sell Russian securities, according to a document.

This could complicate plans by sovereign wealth funds in Norway and Australia to reduce exposure to companies listed in Russia. Read more

In a bid to inject liquidity into the financial system, the central bank said there would be no limit at a “fine-tuning” auction it will hold on Monday.

He said the banking system remained stable with bank cards working normally and customers able to access their funds.

The central bank said it would significantly increase the range of securities that can be used as collateral to obtain central bank loans and temporarily ease restrictions on banks’ open currency positions after the sanctions. Read more

The measure, allowing banks suffering from “external circumstances” to maintain positions above official limits, will be in place until July 1, he said in a statement.

The central bank will continue to monitor the development of currency positions “to ensure the normal functioning of money and money markets and the financial stability of credit institutions”, she said. Read more

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With reporting from Reuters in Moscow; Editing by Catherine Evans and Carmel Crimmins

Our standards: The Thomson Reuters Trust Principles.

James V. Hayes