Russia doubles interest rates up to 20 % after the devaluation of the ruble

winy (62)in Project HOPE • 2 years ago

Russia has doubled its interest rate by 20% in an effort to stem the tide of foreign exchange. The Bank of Russia has raised the rate from 9.5% after the ruble sank by 30% following new Western sanctions. Then the price dropped to about 20%.

The depreciation undermines the ability to buy currency and could end the savings of ordinary Russian citizens. Among the pictures over the weekend of cash machine lines, Russia said it had resources to lift sanctions.

President Vladimir Putin on Monday responded to sanctions by a law barring citizens from transferring money outside of Russia, including the payment of debts. The Moscow stock exchange, which saw huge losses last week as investors traded, will close for a second day on Tuesday.

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The UK, along with the US and the EU, cut off Russia's major banks in the Western financial markets, barring major bank collisions, state-owned investment funds, and the finance ministry. The measures resulted in the collapse of the ruble.

Chancellor Rishi Sunak said the measures reflect "the UK's willingness to apply severe economic sanctions in response to Russia's invasion of Ukraine". Russia has an estimated $ 630bn (£ 470bn) in savings - a lot of savings - built due to rising oil and gas prices.

But because much of this money is stored in foreign currencies such as the dollar, euro, sterling, and gold, the Western ban on cooperation with Russia's largest bank prevents Moscow from receiving cash.

Last week, Russia's central bank was forced to increase the amount of money it offers to ATMs after the demand for cash reached its highest level since March 2020.

Videos on social media on Sunday appeared to show long lines building on cash machines and cash transactions in Moscow, with people worried that their bank cards may be out of order or that they would be restricted on the amount they can withdraw.

Chris Weafer, a senior executive at Moscow-based communications company Micro-Advisory, said on Monday he had seen queues at restaurants.

“You are starting to see a small line in some grocery stores, especially shoppers who think they may be short of sales because of the price of the ruble.

"This set of sentences hits ordinary Russian people in a way that previous sanctions have never been and people now know that.

"People are very scared. It has already been said that some companies have to reduce working hours or stop production because they cannot reach important parts of the West because of sanctions or trade restrictions, so there is a lot of concern on the road."

Moscow resident Anastasia told Reuters she expected her economic situation to deteriorate. "It's inevitable in these situations," he added. While another Moscow resident Sergey said he already saw the impact. "Prices are going up, of course, savings are declining and stocks are going down."

On Monday, the central bank said it had instructed traders to suspend the issuance of all orders by foreign law firms and individuals to sell Russian investments.

Analysis

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The sanctions imposed by the EU, the US, the UK, and others have never been seen. It is one thing to block the foreign resources of a country like Iran or Venezuela, it is very different to take action against Russia - a country that plays a major role in world trade and is the most important supplier of oil and gas.

The response to financial markets has been dramatic - with the collapse of the ruble, despite efforts by the central bank to finance it using interest rates. There may already be a rush to foreign ATMs in Russian cities, but its citizens have not yet felt the full impact.

At least prices will go up significantly; bank collapse, hyperinflation, and deep recession are all consequences.

But sanctions are two ways. Disconnecting the central bank in the reserves and reducing access to Russian facilities on the Swift network will not only hurt Russia - western institutions also face debt losses that cannot or will not be repaid, for example. Then there is the danger of military action from Russia - which could hit the power outage.

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