Russia’s central bank scrambles to limit fallout from tough sanctions

Feb 27 (Reuters) – Russia’s central bank on Sunday announced a series of measures to support domestic markets as it struggles to manage the growing fallout from tough Western sanctions over the weekend in retaliation for the invasion of Ukraine via Moscow.

The central bank said it would resume buying gold domestically, launch a no-limit buyout auction and ease restrictions on banks’ open currency positions. It also expanded the range of securities that can be used as collateral to obtain loans and ordered market participants to reject offers from foreign clients to sell Russian securities. Read more

The central bank did not respond to a request for comment from Reuters.

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The moves came after Western allies stepped up sanctions on Saturday, taking steps to ban major Russian banks from the main global payment system SWIFT and announcing further steps to limit Moscow’s use of a war chest. $630 billion to undermine sanctions. Read more

The new round of sanctions was likely to deal a devastating blow to the Russian economy and make it difficult for Russian banks and companies to access the international financial system. The ruble plunged nearly 30% to an all-time low against the dollar on Monday.

Russians waited in long queues outside ATMs on Sunday, fearing that new Western sanctions against Moscow’s invasion of Ukraine could cause cash shortages and disrupt payments.

“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,” said Jeffrey Halley, senior market analyst based in Asia at OANDA.

Nomura analysts said the West’s new retaliatory moves against Russia are likely to have wider global implications.

“These sanctions from the West are likely to harm trade flows out of Russia in the long term (about 80% of foreign exchange transactions processed by Russian financial institutions are denominated in USD), which will also harm the growth prospects of major partners. Russia’s trading markets, including Europe and lead to higher inflationary pressures and risk of stagflation, in our view,” the analysts wrote in a note to clients.

Energy giant BP has opened a new front in the West’s campaign to isolate the Russian economy, with its decision to drop its stake in state oil company Rosneft (ROSN.MM) for a cost of up to $25 billion, the most aggressive move ever made by a company in response to Moscow’s invasion of Ukraine. Read more

Russian business operations of other Western companies are also in the spotlight as governments tighten financial screws on Moscow

Several European subsidiaries of Sberbank Russia, majority-owned by the Russian government, are failing or are likely to fail due to the reputational cost of war in Ukraine, the European Central Bank, the lenders’ supervisor, said on Monday.

The Russian central bank in several announcements on Sunday sought to ensure financial stability. He said he would start buying gold on the domestic market again from February 28.

He also ordered market participants to reject attempts by foreign clients to sell Russian securities, according to a central bank document seen by Reuters.

In a bid to inject liquidity into the financial system, he said there would be no limits at a “fine-tuning” auction he plans to hold on Monday and added that the banking system remained stable after new sanctions targeting Russian financial institutions.

The central bank said bank cards were working normally and customer funds could be viewed at any time. He said it would greatly expand the range of securities that can be used as collateral to secure central bank loans. Read more

The central bank also said it was temporarily easing restrictions on banks’ open currency positions after the sanctions. The measure, allowing banks suffering from “external circumstances” to maintain positions above official limits, will be in place until July 1, he said in a statement.

The central bank said it would continue to monitor changes in currency positions “to ensure the normal functioning of money and money markets and the financial stability of credit institutions.” Read more

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Moscow office report; Written by Paritosh Bansal and Shri Navaratnam; Editing by Stephen Coates and Jacqueline Wong

Our standards: The Thomson Reuters Trust Principles.

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