Overview

  • Central Bank raises key interest rate from 9.5% to 20%
  • Initiatives aimed at solving the ruble and inflation problems
  • Russian company starts selling foreign currency

The Russian central bank acted urgently, raising its key interest rate from 9.5 percent to 20 percent on Feb. 28, and as the ruble fell to a record low, authorities told export-focused companies to prepare to sell foreign currency.

The ruble fell to a low of 120 to the dollar on electronic currency trading platform EBS on Sunday after Russian President Vladimir Putin ordered the military command to put the nuclear armed forces on high alert, while the West imposed tough sanctions on Russia.

The central bank said the increase would bring the deposit rate to "the level needed to compensate for the increased risk of devaluation and inflation". The bank also said that its inflation target is 4 percent and that it will take all necessary measures to ensure that the country maintains financial stability.

It adds.

“This is necessary to support financial and price stability and to protect citizens’ savings from devaluation.”

After the West moved to block certain Russian banks from accessing the SWIFT international payments system to punish Moscow for its invasion of Ukraine, interest rates were raised to levels above 17% of what they were in 2014 when Russia annexed Crimea from Ukraine.

Russia says its operation in Ukraine is aimed at destroying the military capabilities of its southern neighbor and capturing what it considers dangerous nationalists, rather than occupying territory, calling it an "exceptional operation.

In a statement, the central bank said.

“The external conditions of the Russian economy have changed dramatically.”

The bank said the central bank governor, Elvira Nabiullina, will hold a briefing at 1300 GMT on Tuesday.

Russia's central bank raises interest rates to 20%

The Central Bank of Russia and the Ministry of Finance will jointly decide to order Russian export companies to sell 80% of their foreign exchange earnings on the market in order to support the ruble.

The latest move adds to a series of measures announced since Thursday last week as the state grapples with the widening impact of Western sanctions.

Russian authorities have also ordered brokers to stop executing orders for the sale of Russian securities by foreign legal entities and individuals, and to suspend short selling activities on the Russian market.

In a report, BCS Global Markets said.

“These measures may help calm growing market tensions, but at the same time they undermine the foundations of monetary policy, with its focus on inflation targeting and a flexible exchange rate.”

“The unfavorable external environment makes Russia’s monetary policy unsustainable and we do not rule out possible future rises or further unexpected non-market decisions.”