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Russian Central Bank raises interest rates to curb ruble’s decline

Russian Central Bank

Moscow, (Business News Report)|| The Russian Central Bank raised interest rates on Monday morning, in an attempt to stem a massive fall in the ruble currency.

The Russian Central Bank began raising interest rates, as one of the tools to calm the continuous decline in the local currency due to the war with Ukraine.

The bank said in a statement: “The interest rate was raised from 9.5% to 20%, and the decision will be implemented as of Monday morning.”

This comes at a time when the exchange rate of the ruble against the dollar fell to an average of 100 against 74 rubles before the start of the Russian military operation in Ukraine.

This coincides with the announcement by the European Commission, the United States and Canada, on Saturday night, of imposing additional sanctions on Russia and its economy, including sanctions on the Central Bank, and preventing 70 percent of banks from accessing the SWIFT system for cross-border money transfers.

Earlier on Monday, Britain said it was moving to impose more sanctions on the Russian Central Bank, as one of the tools to deter the Russian military in Ukraine.

At dawn last Thursday, Russia launched a military operation in Ukraine, which was followed by angry reactions from several countries and calls for tougher sanctions against Moscow.

In a related context, the value of the US dollar rose against almost all the corresponding currencies, as a result of the sanctions imposed on Russia and the inflamed demand for the international reserve currency, while the prices of US Treasury bonds also rose.

Dealers are accumulating the most liquid assets with the impact of the sanctions imposed on the Central Bank of Russia and its other banks extending to global markets, in addition to talking about the possibility that the US Federal Reserve may be forced to intervene in international markets.

Futures contracts on European and American stocks fell, as did the value of many currencies such as the euro and the rand.

“The US dollar is the king, combining liquidity and safe haven qualities, and people look for cover for protection when they encounter crises along the way” said Rodrigo Cattrell, currency market analyst at the National Australia Bank.

Signs of a funding crunch became apparent in the major currency markets on Monday morning as risk spreads widened on short-term Eurodollar contracts. And the gap between future Libor rates and the Federal Reserve (FRA/OIS) increased by nine basis points for one-month contracts, hitting the highest level since March 2020.

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