Russia’s Central Bank Has Increased The Key Interest Rates To 20%, More Than Twice As Much As It Did Before, To Increase Ruble’s Sinking Value

Russia’s central bank increased its key interest rate from 9.5% to 20% Monday. As its currency, hit a record low against the USD in response to a number of new sanctions imposed on Russia and the U.S. over its invasion of Ukraine.

According to the central bank, the rate hike was made “in order to offset increased risks of ruble appreciation and inflation.”

In an attempt to limit market volatility, the central bank has ordered foreigners to stop trying to sell Russian securities. The ruble plunged to 119.50 dollars, a drop of 30% over Friday’s close.

In order to increase liquidity, the bank said that it would release 733 billion rubles (8.78 billion) of local bank reserves. Elvira Nabinullina, Governor of the Russian Central Bank, will give a briefing Monday at 1 p.m. London Time.

These events highlight fears about a bank panic in Russia. Already, lines have formed at Russian ATMs to withdraw cash. Sberbank Europe is owned by Russia’s state-run Sberbank. It claims it has seen “significant outflows” of deposits in a short time.

Monday’s statement was made by the Russian central bank and finance ministry. They announced plans to direct domestic exporters that foreign exchange revenues will be sold starting Feb. 28. Exporters will have to sell 80% off all foreign revenues that they have received under export agreements.

The U.S., Canada, and European allies agreed to disconnect key Russian banks from SWIFT’s interbank messaging system. This connects over 11,000 banks and financial institutions across more than 200 countries and territories. Sunday was also the day that the EU announced it would close its airspace to Russian planes.

The volatility in Russian markets shows that the US-led EU decided to freeze assets of Russian central banks. This was on the weekend. CNBC’s “Squawk Box Europe,” hosted by David Marsh, Chairman of OMFIF economic policy think tank, said Monday.

He said that “that is actually more important than the SWIFT actions, which were breaking a taboo Germany when it joined in that over the weekend,” referring to sanctions that have removed several Russian banks from the SWIFT global payments system.

Over the last few years, Russia has built up a war chest worth $630 billion in foreign reserve, its highest ever level. Analysts believe this will allow it to withstand sanctions and loss of export revenue. Russia’s calculus will change if some of these assets are frozen.

Ursula von der Leyen, President of the EU Commission, stated in a Sunday statement that “we will paralyze Russia’s assets,” It will also freeze all transactions. It will also make it difficult for the Central Bank’s to liquidate its assets.

As Russian forces deploy to Ukraine, President Vladimir Putin has increased the severity of punitive actions against Russia. This is the most severe EU-wide action against Russia. This follows several days’ worth of heavy shelling, missile strikes, and bombardment in major urban centers, including the capital Kyiv and Kharkiv of Ukraine, which have combined populations of almost 5 million.

According to Ukraine’s defense ministry, Ukrainian forces have managed to halt the Russian advance and maintain control over the two cities.