Updated: March 1, 2022 1:10:35 pm
As markets opened Monday, the impact of the sanctions package announced by the western nations triggered mayhem in the Russian financial and the global commodities’ markets.
There are five areas where impact was clearly visible: A sharp tanking of the Russian ruble, a looming fear of a run on its banks, a panic reaction by the Russian central bank to suspend the execution of all orders by foreigners to sell securities indefinitely starting February 28 morning, a looming shortage of most consumer goods that Moscow sources from the West, and a worsening of terms of trade on future imports. Also, the global commodity markets are seeing an upsurge, with crude, gas and metals spiking.
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The Russian ruble tanked 30 per cent versus the dollar in offshore trading on Monday morning, trading as low as 117.8170 to a US dollar based on data compiled by Bloomberg, as against around 76 to a dollar on February 22.
Suspension of sell orders of Russian securities
Reacting to the plans announced by the US and European Union nations to sanction Moscow’s central bank and cut off some financial institutions from the SWIFT messaging system, Russia’s central bank Monday ordered professional stock market participants “to suspend the execution of all orders by foreign legal entities and individuals” to sell Russian securities from February 28 morning, Reuters reported quoting an internal document.
The document was published by ACI Russia, a leading trade association representing the interests of the wholesale financial markets community. The order stated that the measures were being taken by the regulator “in connection with the current crisis in the financial market and in order to ensure the protection of the rights and legitimate interests of investors in financial markets”. It added that the decision was valid from 7 a m (04:00 GMT) on February 28 until the “cancellation of this order”.
Consumer goods shortage
The impact of some of these measures would clearly end hurting middle class Russians, given that the country remains highly dependent on the West for many of its consumer goods. It is these goods that are stocked in Russian supermarkets and had catalysed the consumption boom in the economy over the last 6-odd years. This collapse of the ruble will impact the Russian living standards further, while having a deleterious effect on Moscow’s “terms of trade” with its partners.
Russia’s central bank had, late Sunday night, issued an appeal for calm amid fears that new financial sanctions could spark a run on its banks, claiming it “has the necessary resources and tools to maintain financial stability and ensure the operational continuity of the sector”.
The US, EU, United Kingdom and Canada had announced that the assets of Russia’s central bank will be frozen, which would make it difficult for it from selling them overseas to support its own banks and companies. Also, some Russian banks are to be excluded from the SWIFT payment network.
On Friday, Russia’s central bank was forced to increase the amount of money it supplies to ATMs after demand for cash reached the highest level since March 2020, the BBC reported. Reports showed long queues in cities like Moscow and St Petersburg, with people waiting to withdraw their ruble deposits amidst fears of a further tanking of the currency. The rush, combined with the lack of headroom for the central bank, accentuates the possibility of bank runs.
Brent crude surged past $104 a barrel in the wake of the fresh sanctions on Russia, one of the top global producers of oil, gas, metals and agricultural products. Futures in London jumped as much as 6.5 per cent in early Asian trade on Monday, Bloomberg reported.
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