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The Russian rouble has crashed more than 40% to a new record low against the dollar, oil prices have jumped as much as $7 a barrel and gold prices have gained 1%, as financial markets opened for trading for the first time since western nations announced wider economic sanctions on Russia for its invasion of Ukraine.
The sanctions include blocking some Russian banks from the Swift international payments system, leading to expectations among investors of a run on the Russian currency as people scramble to swap their roubles for dollars and other denominations.
The Russian central bank was quick to respond and hiked its key interest rate to 20% from 9.5% this morning to stem the slide in the rouble, which will lead to higher inflation. Russia has also ordered companies to sell 80% of their foreign currency revenues, the central bank and the finance ministry said.
This comes after a number of measures announced by the Bank of Russia on Sunday to counter the economic impact of western sanctions. It said it would resume buying gold on the domestic market, launch a repurchase auction with no limits and ease restrictions on banks’ open foreign currency positions. It also increased the range of securities that can be used as collateral to get loans and banned brokers from selling Russian securities to foreigners.
The rouble dropped as low as 119 per dollar in Asian trading, and later traded 28.8% lower at 118, compared with its closing price of 83.64 on Friday.
Russian markets will open at 10am local time, three hours later than usual. European stock markets are set to fall at the opening bell after chunky gains on Friday.
Brent crude has moved back above $100 a barrel, after falling below that threshold on Friday (it touched close to $106 a barrel on Thursday when Russia began its invasion of Ukraine). This morning the global benchmark is trading at seven-year highs again, up $5 at $103.01 a barrel, a 5.2% rise, while US light crude is $5.46 ahead at $97.08 a barrrel, a 6% gain.
Gold has benefited as a safe-haven investment, with spot gold rising by 1% to $1,905 an ounce.
In a sign that the war in Ukraine isn’t going as planned for Russia, Vladimir Putin on Sunday ordered his military to put Russia’s nuclear deterrence forces on high alert, a rather scary development. The US responded that this was a “totally unacceptable” escalation.
But there was also hope for talks: the Ukrainian president, Volodymyr Zelenskiy, announced that a delegation would meet Russian officials without preconditions on his country’s border with Belarus, but it was far from clear Putin was ready to entertain talks that did not involve compliance with his demands that Ukraine accept partition and disarm.
Things have moved on fast since last Monday when Putin announced he was formally recognising separatist regions in eastern Ukraine and ordered troops into the region. This was followed by Russia’s full-scale invasion of Ukraine in the early hours of Thursday, and a Russian assault on the capital, Kyiv, on Friday and Saturday.
The fierce fighting, also in Ukraine’s second-biggest city, Kharkiv, prompted the US, Britain, the EU and Canada to block Russia’s access to the Swift international banking payment system on Saturday, after mounting pressure for greater sanctions.
Berenberg analyst Holger Schmieding said:
The exclusion of major Russian banks accounting for 70% of the Russian banking market from the SWIFT system to make payments and the possibly even more far-reaching attempt to limit the use of Russia’s foreign exchange reserves of some $630bn can cause problems for financial and non-financial companies outside Russia. The precise impact is difficult to predict in advance. But we would expect central banks, regulators and finance ministers to see to it that the measures will not cause a major financial accident in the advanced world beyond temporary frictions.
The British oil giant BP bowed to pressure to exit its stake in the Russian state-owned oil company Rosneft last night. The firm announced that it was offloading its 19.75% voting stake in Rosneft, saying Russia’s invasion of Ukraine represented a “fundamental change” in relations with Moscow. The value of the stake was estimated at $14bn (£10.4bn) at the end of last year. It is unclear who BP would sell it to.
The oil firm said its chief executive, Bernard Looney, was resigning from the Rosneft board with “immediate effect”. Former BP chief executive Bob Dudley also stood down from the Rosneft board, which is chaired by the former German chancellor, Gerhard Schröder, and run by Igor Sechin, a close ally of president Vladimir Putin.
Russian airlines are facing an almost complete blockade from flying west over Europe after they were barred from the airspace of nearly 30 countries. On Sunday evening the European Commission president, Ursula von der Leyen, said the whole bloc would close its airspace to Russian aircraft.
And Britain has compiled a “hit list” of Russian oligarchs who will face sanctions over the coming weeks, according to the foreign secretary, Liz Truss. She said there were more than 100 billionaires in Russia and that some of them would face “a rolling programme of sanctions” as officials compiled the evidence to justify their assets being frozen in the UK.
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