The Russian Central Bank raises interest rates to 20% to support the ruble

On Monday, the Russian Central Bank more than doubled the country’s key interest rate from 9.5% to 20% as a currency, rublerecorded a record low against dollar Against the background of a series of new sanctions and sanctions imposed by Europe and the United States on Russia for its invasion of Ukraine.

The central bank said the rate hike was “designed to offset the increased risks of ruble depreciation and inflation”.

This comes after the Central Bank ordered to stop foreigners’ efforts to sell Russian securities in an attempt to contain market repercussions. The ruble fell as much as 119.50 to the dollar, a massive 30% drop from Friday’s close.

The bank also said it would release 733 billion rubles ($8.78 billion) from the reserves of local banks to boost liquidity. Russian Central Bank Governor Elvira Nabiullina will hold a briefing at 1pm London time on Monday.

The dramatic developments underscore fears of a Russian bank run. Already, long queues were seen to withdraw cash at ATMs in Russian cities. Sberbank Europe, which is owned by Russia’s state-run Sberbank, says it has seen “large outflows of deposits in a very short time”.

In a statement on Monday, Russia’s Finance Ministry and Central Bank announced plans to order domestic exporters to sell their foreign exchange earnings from February 28. The move would require exporters to sell 80% of all foreign exchange earnings they earned under export contracts.

Over the weekend, the United States, European allies and Canada agreed to isolate major Russian banks from the interbank messaging system, SWIFT, which connects more than 11,000 banks and financial institutions in more than 200 countries and territories. The European Union also announced on Sunday that it would close its airspace to Russian aircraft.

The volatility in the Russian markets “shows that the freeze on the assets of Russia’s central banks, which was decided by the European Union and other Western countries led by the United States over the weekend – shows how important this step is,” David Marsh, head of the OMFIF economic policy think-tank, told Squawk Box Europe” on CNBC on Monday.

“This is actually much more important than the Swift action, which was breaking a taboo by Germany when it joined that at the weekend,” he said, referring to the sanctions that have cut off many Russian banks from the global Swift payments system.

“That means there will be this massive scramble for dollars in Russia – we’ve seen the queues outside the banks and so on.”

Russia over the past several years has amassed a war fund of about $630 billion in foreign reserves, an all-time high, which analysts say will help it withstand sanctions and losses in export earnings. But if some of those assets are frozen, that changes the calculus for Russia.

“We will paralyze the assets of the Russian Central Bank,” European Commission President Ursula von der Leyen said in a statement on Sunday. “This will freeze its dealings and make it impossible for the central bank to liquidate its assets,” he added.

“The fact that the Russians cannot deploy a significant portion of these $600 billion foreign exchange reserves that the Russian Central Bank has been carefully building means we are in a state of war,” Marsh said. “And the idea of ​​isolating Russia, which a few days ago was seen as out of the question, is now a reality.”

The escalation of punitive measures against Russia – the most powerful measures the European Union has used against it – comes as Russian forces deployed by President Vladimir Putin launch attacks across Ukraine. It comes after several days of heavy bombing and missile strikes in major urban centers including Ukraine’s two largest cities, Kyiv and Kharkiv, which together have a population of nearly 5 million people.

The Ukrainian Defense Ministry said, on Sunday, that the Ukrainian forces have so far been able to curb the Russian advance and continue to control the two cities.

Correction: This story has been updated to show that the rate hike in Russia has been more than double its original rate.