Russian central bank steps in to shore up rouble after plunge to record low

Moscow  —  The rouble bounced off all-time lows on Thursday as the central bank announced forex interventions and stocks plummeted, bracing for harsh sanctions against Moscow, after President Vladimir Putin ordered Russian forces to invade Ukraine.

No Russian assets were left unscathed as Russian forces fired missiles at several Ukrainian cities and landed troops on its south coast, after Putin authorised what he called a special military operation in the east.

The Russian currency shed 7.9% of its value to 87.52/$ in late afternoon trade, having earlier hit a record low of 89.60 in highly volatile trading.

Against the euro, the rouble lost 6.5% to trade at 97.60, earlier hitting an all-time low of 101.03 on the interbank market.

For the first time since 2014, when Russia annexed Crimea from Ukraine, the central bank said it will support the rouble with foreign currency interventions to shore up financial stability.

The central bank could ease the pressure on the rouble as its gold and forex reserves are close record highs of near $640bn, analysts say.

“War or no war, tensions between the West and Russia are to remain high for longer, putting the rouble under pressure,” said Stephanie Kennedy from Economic Research at Julius Baer.

The rouble was expected to gain support from Russia’s economic recovery and high prices for oil and gas, its chief export, but sanctions and risk aversion leave little room for its recovery, meaning reduced living standards and higher inflation.

Russian markets braced for harsh sanctions in response to Russia's invasion of Ukraine.

“The Russian stock market in all its history has never lived through such a catastrophe as today,” said Evgeny Suvorov, an economist at CentroCreditBank.

The dollar-denominated RTS stock index crashed 39% to 742.9 points after hitting 610.33, its lowest since January 2016. The rouble-based MOEX Russian index ended the day 33% lower at 2,058.1 points after hitting 1,681.55, its lowest since early 2016.

Russia’s second-largest lender VTB crashed 42% on the day after the UK said it was imposing sanctions on the state-owned bank.

Shares in Russia’s flagship carrier Aeroflot fell more than 30% on the day after the UK said its aircraft would be banned from landing in Britain.

Russia’s largest lender Sberbank, shares in which lost nearly 46% in a day on Thursday, said it was prepared for any developments and had worked through scenarios to guarantee its customers' funds, assets and interests were protected.

Yields on Russian benchmark 10-year OFZ rouble bonds , which move inversely to prices, rose to 14.09%, their highest since early 2015.

Western countries and Japan have already imposed sanctions on Russian banks and individuals in response to Moscow’s recognition of two breakaway regions in eastern Ukraine, but promised tougher measures should Russia invade.

Reuters