Western governments radically stepped up sanctions on Russia over the weekend, including banning some of the country’s leading banks from the international SWIFT payment network and freezing central bank reserves held overseas.
The interventions effectively made doing business with Russia almost impossible. RBC said the moves would “cripple international transactions.”
The price of commodities spiked and stocks sank in response. Natural gas jumped by as much as 30%, oil was 5% higher at $103 a barrel and the price of wheat rose 4.7% to $900.25 per bushel.
Commercial banks in London were racing to comply with the new sanctions, some of which came into force immediately. One source described it as ”an intense amount of work”.
People walk past a currency exchange office in central Moscow on February 24
/ AFP via Getty ImagesMoscow’s central bank was this morning battling to stop capital flight and full-blow financial collapse. The Bank of Russia hiked the country’s interest rate from 9.5% to 20% in a bid to defend the rouble, which fell as much as 30% against the dollar today to reach a new all-time low.
“External conditions for the Russian economy have drastically changed,” the central bank said today.
People were pictured queuing at ATMs in Russia as the value of the currency collapsed and UBS flagged “concerns about larger-scale bank runs”. There was speculation that withdrawal limits could be announced as soon as today, with the central bank due to give a press conference this afternoon.
Moscow has ordered Russian stockbrokers to block international trades and the stock exchange remained closed today, effectively stopping people from pulling money out of the country. The measures didn’t apply to Russian companies listed overseas and investors dumped Russian stocks indiscriminately.
Gold and silver miner Polymetal, which has pits in Russia and Kazakhstan, halved in value in London. Rival Petropavlosk sank 23%. Steel giant Evraz, which makes over a third of its revenue in Russia, saw its share price crash by a third. JPMorgan Russian Securities lost over a fifth of its value.
Experts said the Bank of Russia’s interventions would not be enough. Per Hammarlund at Swedish bank SEB said: “It appears that Russia will experience a full-blown financial crisis.”
Hammarlund flagged spillover into Europe: “Economic growth in the EU, especially in Eastern Europe, will not escape collateral damage from sanctions. Energy prices are likely to spike as are prices for key commodities and metals such as wheat, palladium, aluminium and uranium.”