MARKETS

Russia’s Ruble, Financial Markets Are Hammered by Sanctions

Central bank doubles interest rates to protect the banking system as the ruble plunges

By Caitlin Ostroff
https://twitter.com/ceostroff
caitlin.ostroff@wsj.com
Updated Feb. 28, 2022 6:20 am ET

Powerful Western sanctions rocked Russia’s financial system and triggered a spiral in the ruble, drawing the central bank into an emergency doubling of interest rates.

The Russian ruble fell as low as 111 to the U.S. dollar from 83 on Friday, a drop of more than 20% and, if sustained, the biggest single-day fall on record. But trading was spotty, with local onshore markets frozen by the central bank and markets outside Russia reluctant to trade the currency.

The Bank of Russia took a raft of measures early Monday to protect Russia’s banking system. It raised benchmark rates to 20% from 9.5% in an attempt to attract savings into banks, the largest of which were targeted by Western sanctions and will be all but cut off from international markets.

The bank delayed trading on domestic debt and currency markets, making it difficult to assess where the ruble would end up. The central bank blocked the opening of the stock market. It also ordered Russian companies, some of which generate sales for energy products in dollars, to sell 80% of their foreign-currency revenue. The move will create demand for rubles and prevent companies from hoarding dollars.

Investors increasingly priced the chance that Russia won’t be able to, or won’t be willing to pay off its foreign debts. The yield on a Russian dollar bond maturing in June 2027 jumped to more than 24% Monday from just under 10% Friday, according to Tradeweb.

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—Paul Hannon and Greg Ip contributed to this article.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com