Russia’s central bank hikes interest rates to 20% amid tough sanctions

Russia’s central bank has raised the country’s key interest rate to 20%, more than doubling it up from 9.5% as the reality of tough sanctions appears to hit home.

According to a statement from the central bank, the  rate hike “is designed to offset the increased risk of ruble depreciation and inflation.”

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On top of the rate hike, the central bank ordered Russian companies to dispose of 80% of their revenues held in foreign currency.

A statement quoted by Reuters noted that the bank’s move is due to the “drastically changed,” conditions due to the war, which are impacting the Russian economy.

The bank is looking to boost deposit rates and in the process help to mitigate against depreciation and inflation risks.

On Sunday, the central bank sort to calm the markets by confirming a raft of measures. Among these, is a resumption in gold purchases from the Russian market and a repurchase auction. It also asked financial market players not to accept foreign clients’ bids for the sale of Russian securities.

Ruble plunges 30%

Bank of Russia’s actions come just days after Vladimir Putin attacked Ukraine, attracting various sanctions. On Saturday, the US, European Union, and Canada agreed to cut Russian banks off the SWIFT system.

Monday’s announcement also came as the country’s stock market failed to open, while the ruble fell to new lows against the dollar. As of writing, the ruble is trading at 119.50, nearly 30% down against the greenback.

Ray Attrill, head of FX strategy at the National Australia Bank Ltd, says the sanctions against Russia could leave the central bank unable to defend the ruble.

In a note to Bloomberg, the strategist points to the sanctions’ potential to make it difficult for the bank to access $643 billion in FX reserves. It’s these reserves the strategist says the central bank might rely on in trying to bolster the ruble. If the bank cannot access the money, its plans to defend the ruble from further rot might not work.