Central Bank of Russia on Monday steeply increased its principal policy rate to 20%, following the announcement of an array of measures to underpin domestic markets. The Central Bank of Russia scrambled to manage the implication of brutal Western sanctions in response to Moscow’s annexation of Ukraine.
Central Bank of Russia Increases Policy Rate
The Central Bank of Russia increased the rate from 9.5% to counter the risks of the Russian Rouble’s depreciation and increased inflation and also instructed firms to sell 80% of their foreign currency revenues.
The Central Bank of Russia stated that external conditions for the Russian economy have vastly transformed. Accordingly, it indicated that the hike in principle policy rate would ensure a surge in deposit rates to standards required to compensate for the rise in depreciation and enhanced inflation risks.
Monday’s policies solidify other measures declared on Sunday, which stated that the Central Bank of Russia would resume purchasing gold from the domestic market, release a re-purchase auction with no restrictions, and ease limitations on banks’ open foreign currency situations.
It also surged the array of securities utilised as collateral to receive loans and ordered market players to abstain from foreign clients’ bids to sell Russian securities.
The bank stated that the governor of the Central Bank of Russia, Elvira Nabiullina, is set to hold a briefing at 1300 GMT (9 PM – Singapore time).
The steps arrive after Western allies intensified sanctions on Saturday, taking action to restrict big Russian banks from the chief global payments system SWIFT and declared other measures to limit Moscow’s utilisation of a USD 630 billion war chest to weaken sanctions.
The new-fangled set of Western sanctions was likely to portray a demeaning blow to the Russian economy and make it challenging for Russian banks and firms to access the international financial system. As a result, the Russian Rouble plummeted close to 30% to an all-time low against the dollar bill on Monday.
Will Russia Ever Witness Financial Stability?
In numerous declarations on Sunday, the Central Bank of Russia sought to guarantee financial stability. Accordingly, it stated that it would resume purchasing gold in the domestic market from February 28th.
It included those consumers of sanctioned banks who would not utilise their bank cards outside Russia and that cards delivered by the sanctioned banks would not function on Apple Pay or Google Pay.
The central bank also indicated that market players must reject efforts by foreign clients to sell Russian securities, as per an important bank document viewed by Reuters.
This complicates strategies by the sovereign wealth funds of Australia and Norway, which stated they brainstormed to wind down exposure to Russian-listed firms.
In a bid to liquidate cash within the fiscal system, the central bank stated that there would be no boundary for fine-tuning repo auction it brainstorms to embrace on Monday. It also included that the banking system prevailed stable after the new-fangled sanctions were targeted and implemented on Russia’s monetary institutions.
The Central Bank of Russia stated that bank cards were functioning as expected and that consumer funds could be retrieved at any time. Furthermore, it indicated that it would augment the range of securities utilised as collateral to access central bank loans and borrowings.
It also stated that it was temporarily relaxing limitations on banks’ foreign currency situations after implementing the sanctions. The measure, allowing banks witnessing unfavourable external circumstances to maintain positions beyond the official limits, will be in place until July 1st, it indicated.
The central bank stated that it would strive to scrutinise changes in the current position to ensure the normal working of the currency, fiscal markets, and the monetary stability of lending institutions.