Russian Central Bank Tightens Policy After Rouble Plummets On Ukraine

Russia’s central bank hiked its key lending rate by 1.5 percentage points on Monday after the rouble hit an all-time low on President Vladimir Putin’s declaration at the weekend of his right to invade Ukraine.

The central bank did not mention Ukraine in its statement, but said the decision to raise rates was aimed at preventing “risks to inflation and financial stability associated with the recently increased level of volatility in the financial markets”.

The new key lending rate – the one-week repurchasing agreement – is raised effective immediately to 7 percent from 5.5 percent, the central bank said in a statement.

On Saturday, Putin requested and won parliamentary approval to send troops into Ukraine to protect Russians and the Black Sea Fleet in the southern region of Crimea if the situation worsened. His spokesman said he had yet to take the decision.

In response, the United States threatened to impose sanctions, including severing trade and freezing assets, and the seven other countries belonging to the Group of Eight leading industrial nations stopped preparations for a summit due to take place in Russia’s Black Sea resort of Sochi in June.

At 0645 GMT the rouble was down 2 percent to 36.41 against the dollar and it was also down 1.2 percent to 50.10 against the euro.

The rouble-denominated MICEX index of Russian shares was down 9.1 percent to 1,313.8 points and the dollar-denominated RTS .IRTS fell 10.3 percent to 1,166.1 points.

“There’s a sell-off of everything right now,” said Artem Argetkin, trader at BCS in Moscow. “Brokers, for sure, are trying close their positions at any price.”

Shares in some Russia’s blue chips, such as Gazprom (GAZP.MM) were down more than 10 percent. Shares in state banks Sberbank (SBER.MM) and VTB (VTBR.MM) also slid.

The key question for investors is whether any country will move beyond verbal threats to punish Russia and impose sanctions.

The rouble lost as much as 6 percent over the weekend at privately run exchange booths, where the spread between buying and selling increased up to tenfold from an average of 20 kopecks.

“We were not ready for this, we have not stocked up,” a teller at a small exchange said on Sunday, adding that her booth, which is open 24 hours a day, ran out of dollars by Sunday morning.

Source : Reuters