To stem a decline in the value of its currency, Russia interest rates has more than doubled its interest rate to 20%.
After the rouble plummeted 30% as a result of new Western sanctions, the Bank of Russia upped the rate to 10% from 9.5 percent. After that, the currency slid back to a 20 percent depreciation.
The currency’s purchasing power is eroding, and ordinary Russians’ savings could be wiped out. Russia interest rates maintained it had the resources to weather the sanctions, despite images from the weekend showing long lines at cash machines.
On Sunday, videos on social media appeared to show long lines building at cash machines. And money exchanges in Moscow, with individuals, concerned that their bank cards might stop working. Or that cash withdrawal limitations may be imposed.
On Monday, Chris Weafer, the chief executive of consultancy business Micro-Advisory in Moscow, said he was noticing some lines in grocery stores.
Anastasia, a Moscow resident, told Reuters that she expects her financial condition to worsen. “In these conditions, it’s unavoidable,” she added. Sergey, a Moscow resident, said he had immediately noticed a difference. “Of course, prices are rising, savings are diminishing, and stock prices are plummeting.”
UK, US, and The EU Cut Russia’s Bank
The United Kingdom, together with the United States and the European Union, has already cut Russia’s banks off from Western financial markets, forbidding transactions with the central bank, state-owned investment vehicles, and the finance ministry.
Russia has around $630 billion (£470 billion) in reserves. A savings account was built up as a result of rising oil and gas prices.
However, because much of this money is in foreign currencies such as the dollar, euro, and sterling, as well as gold, a Western embargo on dealing with Russia’s central bank prevents Moscow from getting its hands on it.
After demand for cash hit its highest level since March 2020, this compelled Russia’s central bank to raise the quantity of money it delivers to ATMs last week.
The central bank announced on Monday that it has ordered brokers. This is to halt the execution of any orders to sell Russian investments from foreign legal entities and individuals.
Sanctions imposed by the EU, the United States, the United Kingdom, and others are unprecedented. Blocking the foreign reserves of a country like Iran or Venezuela is one thing; acting against Russia, a big player in global trade and a major supplier of oil and gas, is quite another.
Despite the central bank’s efforts to prop up the rouble through interest rates, the reaction on the currency markets has been significant. With the rouble falling.
At the very least, prices will skyrocket; bankruptcies, hyperinflation, and a deep recession are all possible outcomes.
Sanctions, on the other hand, are a two-way street. Cutting off the central bank’s reserves and restricting Russian banks’ access to the Swift network will not only damage Russia; but western institutions will also suffer losses as a result of debts, for example. Then there’s the possibility of Russian retaliation, which might stifle energy shipments.
Astonishingly, the implementation of such broad sanctions took place in such a coordinated manner. It’s also a significant risk.