The war in Ukraine has started taking its toll on the Russian economy as the Central Bank of Russia raised its benchmark policy rate to 20 percent on Monday.
This is the highest interest rate hike in Russia in almost 20 years, from 9.5 percent amid the broadening fallout from the European Union and the US sanctions.
The central bank said the rate hike was designed to offset the increased risk of ruble depreciation and inflation.
It said that external conditions for the Russian economy had drastically changed as Western countries have shown solidarity in retaliation against Moscow's invasion of Ukraine.
“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,” it said in a statement.
“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.”
The governor of the Bank of Russia will make a statement this afternoon in a follow-up to the Board of Directors meeting.
Meanwhile, the Bank of Russia has temporarily banned brokers from selling Russian government securities at the instruction of non-residents.
Trading sessions in the foreign exchange market, the money market, and the repo market of the Moscow Exchange have been temporarily suspended.
Further, the central bank and the finance ministry ordered companies to sell 80 percent of their foreign currency revenues. The bank also said it would be freeing 733 billion rubles in local bank reserves to boost liquidity.
BUSINESS REPORT ONLINE