Ruble and Stocks Tumble on Ukraine Turmoil
Published: March 4, 2014 (Issue # 1799)
The ruble and equity market plummeted Monday morning following escalation in the Crimean crisis over the weekend, as rattled investors withdrew their capital en masse and latched onto the most ironclad assets they could find.
President Vladimir Putin on Saturday received authorization from the Federation Council to move Russian military forces into Ukraine "until the situation in the country is normalized," sparking fears of outright war and threats of economic sanctions from the West.
Related: Central Bank Tested as Ruble Falls to Record Lows
The ruble-denominated MICEX index lost $58.4 billion in market capitalization since the end of trading Friday, the worst sell-off since the crisis of 2008, Reuters reported.
The ruble fell to historically low levels in the morning, trading at 37 to the dollar and 50.7 to the euro and breaching the upper bounds of the 42.2 ruble corridor against the basket set by the Central Bank.
Anticipating instability, the Central Bank unexpectedly raised its key lending rate in the morning from 5.5 to 7 percent, and propped up the ruble by selling dollars.
Related: Economist Advises Russians to Dump Ruble, Buy Hard Currency
"There have been some $11 billion sold today, some $10 billion came from the Central Bank," said Mikhail Paley, a dealer at VTB Capital. The Central Bank still holds $493.4 billion in gold and foreign exchange reserves.
The increased lending rates will boost the cost of financing in rubles, which should in turn make the ruble more attractive for currency traders and ultimately stabilize the exchange rate, said HSBC chief economist Alexander Morozov, Vedomosti reported.
Other analysts doubted that the rate hike can prevent a further decline.
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