Russia-Ukraine conflict: Rouble up from record low

The rouble bounced off all-time lows on Thursday as the central bank announced FX interventions after President Vladimir Putin ordered Russian forces to invade Ukraine, a move expected to trigger new harsh sanctions against Moscow.

Russian forces fired missiles at several Ukrainian cities and landed troops on its south coast on Thursday, officials and media said, after Putin authorised what he called a special military operation in the east.

The rouble eased 3.8% to 84.27 against the dollar as of 0932 GMT, having earlier hit a record low of 89.60 in highly volatile trading.

Against the euro, the rouble lost 3.2% to trade at 94.55 , earlier hitting an all-time low of 101.03 on the interbank market.

For the first time since 2014, when Russia annexed Crimea from Ukraine, the central bank said it will support the rouble with foreign currency interventions to shore up financial stability.

The central bank could ease the pressure on the rouble as its gold and forex reserves are close record highs of near $640 billion, analysts say.

“War or no war, tensions between the West and Russia are to remain high for longer, putting the rouble under pressure,” said Stephanie Kennedy from Economic Research at Julius Baer.

“We revise our three-month target to USD/RUB 85.”

The rouble was expected to gain support from Russia’s economic recovery and high prices for oil and gas, its chief export, but sanctions and risk aversion leave little room for its recovery, meaning reduced living standards and higher inflation.

BONDS AND STOCKS

No Russian assets were unscathed, with shares and bonds plummeting as investors took stock of Russia’s move into Ukraine and the prospect Western penalties will follow.

Yields on Russian benchmark 10-year OFZ rouble bonds , which move inversely to prices, rose to 10.93%, their highest since early 2016.

Western countries and Japan have imposed sanctions on Russian banks and individuals in response to Moscow’s recognition of two breakaway regions in eastern Ukraine, but promised tougher measures should Russia invade.

“The risk of wider and more serious sanctions looms large – a modicum of panic and a potential compliance-driven sell off (are) not unlikely,” BCS Global Markets said in a note.

A senior U.S. administration official told reporters on Tuesday that Russia’s largest lender Sberbank and No. 2 lender VTB would face U.S. sanctions if Moscow proceeded with its invasion of Ukraine, warning that no Russian financial institutions were safe.

Sberbank, shares in which lost nearly 40% in a day on Thursday, said it was prepared for any developments and had worked through scenarios to guarantee its customers’ funds, assets and interests were protected.

The dollar-denominated RTS stock index crashed 28% to 885.05 points, its lowest since early 2020. The rouble-based MOEX Russian index was 24% lower at 2,345.6 points after hitting 1,681.55, its lowest since early 2016.