Russia's Central Bank panics as sanctions cripple economy – ruble rate raised to unprecedented 20%

Sanctions announced earlier had taken the Russian currency to its lowest level against the US dollar in history

Russia’s Central Bank has raised its key rate to an unprecedented 20 percent in a desperate bid to shore up the ruble amid crippling sanctions.

Its key rate has been raised from 9.5 percent to 20 percent as the Russian war in Ukraine rumbles on.

The bank’s action follows the Western decision on Sunday to freeze its hard currency reserves in an unprecedented move that could have devastating consequences for Russia’s financial stability.

It is unclear exactly what share of Russia’s estimated 640 billion dollars (£477 billion) in hard currency coffers will be paralysed by the move, but European officials said that at least half of it will be affected.

The move will dramatically raise pressure on the ruble by undermining the financial authorities’ ability to conduct hard currency interventions to prevent the ruble from sinking further and triggering high inflation. The ruble has dived sharply in early Monday trading.

The Russian Central Bank also ordered measures to help the banks cope with the crisis by infusing more cash into the system and easing restrictions for banking operations.

At the same time, it temporarily barred non-residents from selling the government obligations to help ease the pressure on the rouble from panicked foreign investors eager to cash out.

The Treasury said the UK would strengthen sanctions by targeting Russia’s central bank.

The Government will “take all necessary steps to bring into effect restrictions to prohibit any UK natural or legal persons from undertaking financial transactions involving the (Russian central bank), the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation”, the Treasury said.

Chancellor Rishi Sunak said: “These measures demonstrate our determination to apply severe economic sanctions in response to Russia’s invasion of Ukraine.

“We are announcing this action in rapid co-ordination with our US and European allies to move in lockstep once more with our international partners, to demonstrate our steadfast resolve in imposing the highest costs on Russia and to cut her off from the international financial system so long as this conflict persists.”

The Russian ruble sank nearly 26 percent against the US dollar early on Monday after Western nations moved to block Russian banks from the Swift global payment system.

The ruble was trading at a record low 105.27 per dollar (£78.95), down from about 84 per dollar (£63) late on Friday.

Over the weekend, Japan joined the moves by the US and other western nations to impose more sanctions against Russia.

Restrictions on the Russian central bank target its access to more than 600 billion dollars (£450 billion) in reserves the Kremlin has at its disposal. They hinder Russia’s ability to support the ruble as it plunges in value.

Sanctions announced earlier had taken the Russian currency to its lowest level against the dollar in history.