Ruble plunges and interest rates double as Russian economy reels from sanctions
In a sign of the pain to come, VTB, Russia’s second-largest bank, announced it would raise mortgage rates by four percentage points to over 15%.
JP Morgan expects the Russian economy to contract by up to 20% in the second quarter of 2022.
Meanwhile, shipping giant Maersk has become the latest company to warn it may be forced to cut services to Russia.
The world’s largest container freight company said it was preparing “a possible suspension of Maersk bookings to and from Russia on the ocean and inland” in light of the sanctions. Other operators Ocean Network Express and Hapag Lloyd have already agreed to suspensions.
Chaos was sparked after the US, EU, Canada and UK launched new restrictions on business dealings with Russia’s central bank, national wealth fund and finance ministry.
In addition to blocking access to foreign currency reserves, the West is also excluding Russia’s biggest banks from the Swift system for international payments.
President Vladimir Putin’s assets are frozen in Britain, the United States and the European Union as well as in traditionally neutral Switzerland, along with those of other oligarchs.
Although the Moscow stock exchange remained closed, Russian companies listed abroad saw their valuations plummet.
London-listed shares for major lender Sberbank fell 77%.
Sergei Aleksashenko, former Deputy Governor of the Central Bank of Russia, said: “It is a kind of financial nuclear bomb falling on Russia.
Even the Kremlin was forced to admit that “the economic reality has changed considerably”. A spokesperson said: “These are heavy sanctions, they are problematic, but Russia has the potential to make up for the harm.”
The central bank said its measures were aimed at “protecting citizens’ savings from depreciation” after long queues formed at ATMs on Sunday.
Jeffrey Halley, analyst at Oanda, said: “A bank run has already started in Russia this weekend…and inflation will immediately spike massively, and the Russian banking system is likely to be in trouble.”
In a sign of growing investor concern, credit default swaps insuring Russian government debt have risen in cost, indicating a 56% chance the country will default on its borrowings.
Western officials said they would “prevent Russia’s central bank from deploying its international reserves in a way that undermines the impact of our sanctions.”
As a result, Russia could lose control of most reserves intended to serve as a war chest to protect it from further sanctions, leaving it with only gold and yuan holdings in China.
The US Treasury has also introduced sanctions against the Russian Direct Investment Fund, a major sovereign wealth fund launched by Mr Putin in 2011 to attract investment in Russian companies.
The White House said, “This action will go after the slush fund that Putin and his inner circle of oligarchs rely on.”
Several wealthy Russians have spoken out against Mr. Putin’s invasion of Ukraine.
Oligarch Oleg Deripaska demanded an end to “state capitalism” as Russian oligarchs broke ranks to denounce the invasion of Ukraine.
Mr Deripaska, the founder of Russian aluminum giant Rusal, called for a coherent economic plan as escalating financial sanctions threaten to cripple the country’s economy.
“Raise the [interest] rates, the sale of foreign currency – this is the first test of who will really be responsible,” he posted in Russian on the Telegram messaging app on Monday.
“I really want clarity and intelligible commentary on economic policy for the next three months.”
Mr Deripaska owns almost half of aluminum company EN+, which listed on the London Stock Exchange in 2017, raising $1.5bn (£1.1bn). Former Conservative Energy Minister Lord Barker is its executive chairman and has been called upon to resign over Russia’s actions in Ukraine.