The latest wave of sanctions came on Saturday, when the United States, the European Union, the United Kingdom and Canada said they would expel some Russian banks from SWIFT, a global financial messaging service, and “paralyze” the assets of Russia’s central bank.
“We will also ban transactions of the Russian Central Bank and freeze all of its assets, to prevent it from financing Putin’s war,” European Commission President Ursula von der Leyen said in a statement Sunday.
The collapse of the currency prompted the Russian central bank to return to implementing emergency measures on Monday, including raising interest rates to 20% from 9.5%.
“The external conditions of the Russian economy have fundamentally changed,” the bank said in the statement. “This is necessary to support financial stability, price stability, and protect citizens’ savings from consumption,” the bank added.
Russia is a major exporter of oil and gas, but many other sectors of its economy depend on imports. And with the depreciation of the ruble, the cost of its purchase will become much higher, which will lead to higher inflation. The crackdown on its leading banks, and the exclusion of some of them from the SWIFT secure messaging system that connects thousands of financial institutions around the world, will also make it difficult for them to sell exports.
Analysts have warned that the turmoil could lead to a panicked Russian bank, as savers try to secure their deposits and hoard cash.
Michael Hewson, chief market analyst at CMC UK markets said in a note on Monday.
“It appears that the run on Russian banks inside the country has already begun, as ordinary Russians fear that their credit cards may stop working,” he added.
Last week, the Russian Central Bank intervened in the currency markets in an attempt to support the ruble. On Friday, it said it was increasing the supply of bills to ATMs to meet the growing demand for cash. Russia’s state news agency TASS reported that many banks have seen increased withdrawals since the invasion of Ukraine, particularly in foreign currencies.
“These are the conditions in which local banks come into play,” wrote Neil Schering, chief economist at Capital Economics. “The [Russian central bank] This morning he raised interest rates to 20% but other measures (such as restrictions on deposit withdrawals) could be taken later today. All this will accelerate Russia’s economic slowdown – a decrease in GDP [about] 5% now seems likely.”
– Charles Riley, Laura He and Vasco Cutovio contributed reporting.
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