Russia Hikes Interest Rate to 20%, Asks Firms to Sell FX Reserves

Monday, 28/02/2022 | 09:44 GMT by Arnab Shome
  • The central bank is struggling with the plunging ruble after sanctions.
  • Ruble went down 30 percent on Monday morning against USD.
russia

The Central Bank of Russia announced on Monday the increase of its key interest rate from 9.5 percent to 20 percent that came as an emergency move. The move came as the monetary regulatory is trying to tackle the barrage of economic sanctions imposed on the country by the western governments that pushed down the value of the rubble.

“The Bank of Russia Board of Directors decided to increase the key rate to 20% per annum from 28 February 2022,” the central bank stated.

“External conditions for the Russian economy have drastically changed. The increase of the key rate will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risks. This is needed to support financial and price stability and protect the savings of citizens from depreciation.”

"Further key rate decisions will be made taking into account risks posed by external and domestic conditions and the reaction of financial markets, as well as actual and expected inflation movements relative to the target and economic developments over forecast period."

Restrictions in the Forex Market

Further, the Russian finance ministry and the central bank ordered the export companies to sell 80 percent of their foreign exchange (forex) reserves. This, according to the Russian authorities, will help the plummeting ruble.

The western government started to impose sanctions on Russia last week when President Putin enforced the ‘special military operations’ to invade Ukraine. The intensity of the economic sanctions has increased each day with no clear signs of any de-escalation of the ongoing situation.

After the EU, along with the US and Canada, decided to cut some Russian banks from accessing SWIFT, the ruble plunged 30 percent against the US dollar on Monday morning.

To tackle the economic situation, the Russian central bank even confirmed that it has barred brokers from executing all orders by foreign legal entities and individuals to sell Russian securities.

The Central Bank of Russia announced on Monday the increase of its key interest rate from 9.5 percent to 20 percent that came as an emergency move. The move came as the monetary regulatory is trying to tackle the barrage of economic sanctions imposed on the country by the western governments that pushed down the value of the rubble.

“The Bank of Russia Board of Directors decided to increase the key rate to 20% per annum from 28 February 2022,” the central bank stated.

“External conditions for the Russian economy have drastically changed. The increase of the key rate will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risks. This is needed to support financial and price stability and protect the savings of citizens from depreciation.”

"Further key rate decisions will be made taking into account risks posed by external and domestic conditions and the reaction of financial markets, as well as actual and expected inflation movements relative to the target and economic developments over forecast period."

Restrictions in the Forex Market

Further, the Russian finance ministry and the central bank ordered the export companies to sell 80 percent of their foreign exchange (forex) reserves. This, according to the Russian authorities, will help the plummeting ruble.

The western government started to impose sanctions on Russia last week when President Putin enforced the ‘special military operations’ to invade Ukraine. The intensity of the economic sanctions has increased each day with no clear signs of any de-escalation of the ongoing situation.

After the EU, along with the US and Canada, decided to cut some Russian banks from accessing SWIFT, the ruble plunged 30 percent against the US dollar on Monday morning.

To tackle the economic situation, the Russian central bank even confirmed that it has barred brokers from executing all orders by foreign legal entities and individuals to sell Russian securities.

About the Author: Arnab Shome
Arnab Shome
  • 6613 Articles
  • 97 Followers
Arnab is an electronics engineer-turned-financial editor. He entered the industry covering the cryptocurrency market for Finance Magnates and later expanded his reach to forex as well. He is passionate about the changing regulatory landscape on financial markets and keenly follows the disruptions in the industry with new-age technologies.

More from the Author

Institutional FX