The Russian currency is currently experiencing a truly "devastating" period beyond memory.
The Russian ruble (RUB) was hit hard by the sanctions imposed on Russia by the West over the weekend.
The reason for the adoption of the toughest sanctions on Russia to date is the ongoing and escalating situation in Ukraine.
List of sanctions
- Freezing the assets of President Vladimir Putin and his foreign minister Sergei Lavrov
- Freezing of Russian Central Bank reserves
- Cutting off from SWIFT
In addition to the above-mentioned toughest sanctions, the US, the UK and the EU have adopted a number of smaller ones, such as the closure of EU airspace to Russian airlines.
Although the current sanctions will have a very negative economic impact on Russia, and denying access to the Russian Central Bank's foreign exchange reserves could bring about a total collapse of the ruble, the Russian people in particular will be significantly affected.
Russia's response to sanctions - saving the currency?
Russia sought to avoid a financial meltdown on Monday as Russian President Vladimir Putin held crisis talks with his top economic advisers after the ruble plunged to a record low against the US dollar.
The ruble plunged almost 30% as a result of the weekend sanctions
In response to the currency depreciation, the Russian central bank decided to raise the key rate to 20% to avert the risks of ruble depreciation.
The increase in the base interest rate from 9.5% to 20% is the highest in almost twenty years. According to the central bank, the rate hike is designed to offset the increased risk of ruble depreciation and inflation. Further, the central bank and the finance ministry have ordered companies to sell 80% of their earnings in foreign currency.
Alarming event for traders
Forex brokers have suspended ruble trading!
During the past week, many brokers suspended trading of currency pairs with the ruble. This was due to the escalating situation, due to which the liquidity of the Russian currency was falling sharply. This was alarming news for traders with "exotics" and the close only system (traders could only close positions held on currency pairs with the ruble) did not add much to the situation.
What can we expect?
Of course, we are currently in very difficult times, which are not only having an impact on the currency markets. Especially the European ones.
It will certainly depend on how far this conflict goes.
However, it is certain that the steps taken so far from all sides will have a big impact on the Russian economy.
Rising interest rates have made loans and mortgages more expensive, which will slow down investment.
The Russian central bank also announced that it will release 733 billion rubles from local banks' reserves by releasing the capital buffer created on unsecured consumer loans and mortgages.
Unfortunately, ordinary Russians will mainly feel inflation, which is reaching dizzying heights and threatens hyperinflation.
Thus, it cannot be said that the Russian currency has an optimistic future in the near future.
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