Russia’s economy plunges into chaos as Western sanctions bite

Russia’s economy has been plunged into chaos after Western sanctions triggered a collapse in the country’s currency today.

The value of the rouble tumbled as much as 30 per cent against the dollar today, dropping to its lowest ever level against the global currency benchmark.

The sharp and sudden weakening in the rouble prompted Russia’s central bank to more than double interest rates from 9.5 per cent to 20 per cent in a desperate attempt to protect its value.

Fears over a malfunctioning in Russia’s financial system sparked queues to pile up outside banks across the country yesterday and over the weekend as citizens tried to rescue their cash.

Russia’s central bank last week was forced to inject the banking system with extra cash due to the volume of ATM demands hitting its highest level since March 2020.

The sudden jolt in Russia’s economy led officials to close the Moscow Stock Exchange. Analysts had expected the bourse main index, the MOEX, to tumble as investors ditch rouble-denominated assets.

Yesterday’s turmoil prompted President Vladimir Putin to warn that the “economic reality” in Russia had “changed”.

The UK joined the EU and US in clamping down further on Russia’s economy yesterday by banning all British people and businesses from trading with the country’s central bank, sovereign wealth fund and finance ministry.

Chancellor Rishi Sunak said the tranche of sanctions now announced are designed to inflict “the highest costs on Russia and to cut her off from the international financial system”.

In a move that breaks with its neutral history, Switzerland will adopt all curbs imposed by the EU on Russian companies.

“We stand on the side of Western values,” Swiss President Ignazio Cassis said.

Now sanctioned Russian lender, VTB Bank, whose UK offices are located a short walk from the Bank of England, seemingly took down the Russian flag flying outside their building today.

An alliance of EU nations the UK and US launched a sweeping set of curbs over the weekend to hobble Moscow’s financial system, including setting in motion steps to kick Russian banks out of SWIFT, the global banking payments system, and freezing the country’s central bank’s overseas reserves.

The move will hit lenders’ ability to fulfil depositors’ demands and the central bank’s capacity to prop up the rouble by buying the currency.

“Measures to sanction the [central bank] are clearly having their intended consequences of weakening the rouble,” foreign exchange analysts at bank ING said. 

“Having suffered a variety of crises in recent decades, Russian residents are very sensitive to the [dollar/rouble] exchange rate and clearly, the current rouble decline is hitting home.”

“Suffice to say that the dollar should continue to be the preferred safe haven in these unprecedented times,” they added.