Ruble takes a steep hit, nosedives to a record low after fresh sanctions over Kremlin's Ukraine invasion; Russian central bank doubles interest rates

28 Feb 2022 , 03:56 PM

The Russian ruble is in trouble as the country aggressively invades Ukraine soils. The ruble has dropped to a record low after new and harsher sanctions were imposed by major western economies on Russia as Moscow Kremlin carries an all-out invasion of Ukraine through air, land and sea. The crisis has intensified to the point Russia has also put its nuclear forces on high alert.

The ruble has nosedived by around 30% against the dollar on Monday reaching an all-time low as markets tracked the impact of new sanctions on Russia. The ruble was trading at 100.64  per dollar at the interbank forex market with a drop of 20 from the previous close of 83.86 per dollar. The day’s range stood at 83.86 – 114 per dollar. There is still more room for the weakness in the Russian currency as conflict with Ukraine deepens. 

Russia and Ukraine conflicts do not seem to abate anytime soon which has pushed many countries to carry out sanctions on the former. The US, European allies, Japan and Canada, on Sunday, decided to cut off key Russian banks from the interbank messaging system, SWIFT that connects over 11,000 banks and financial institutions in more than 200 countries. With Russian banks banned from using SWIFT, could lead to banks cards being non-functional or limited cash withdrawals in the country – leading to cash shortages and payments disruptions.

Further, the European Union has announced to shut down its airspace to Russian aircraft. US President Joe Biden has also declared numerous sanctions on Russian banks, their sovereign debt, on Putin and  Foreign Minister Sergey Lavrov.

Also, London-based and one of the supermajors of oil and gas in the world, bp has decided to exit its stake held in Russian integrated energy company, Rosneft. The board of bp has approved for offloading its 19.75% shareholding in the Rosneft. Furthermore, bp chief executive officer Bernard Looney is resigning from the board of Rosneft with immediate effect. The other Rosneft director nominated by bp, former bp group chief executive Bob Dudley, is similarly resigning from the board.

bp chair Helge Lund said, “Russia’s attack on Ukraine is an act of aggression which is having tragic consequences across the region. bp has operated in Russia for over 30 years, working with brilliant Russian colleagues. However, this military action represents a fundamental change. It has led the bp board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue.”

To boost liquidity, Russia’s central bank has announced to pump 733 billion rubles ($8.78 billion) in local bank reserves and also barred brokers to carry out sell orders from foreigners. Further, after the unprecedented western sanctions, the central bank in an urgent attempt to curb financial markets’ fallout, hiked policy interest rates more than double to 20% from the previous 9.5%. It stated that for the Russian economy, the external conditions have changed drastically.

Russia’s President Vladimir Putin has raised an alert level of his nuclear arsenal after US and G7 nations imposed sanctions which virtually cut off the country from international financial systems. G7 allies are – Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

At present, Kremlin continues to advance into Ukraine with all mediums, however, the latter has retained control of the capital Kyiv and the second biggest city, Kharkiv.