Russia's Central Bank has sharply raised its key rate from 9.5% to 20% in a desperate attempt to shore up the plummeting ruble and prevent the run of banks amid crippling Western sanctions over the Russian war in Ukraine.
The bank's action follows the Western decision Sunday to freeze its hard currency reserves in an unprecedented move that could have devastating consequences for the country's financial stability. It was unclear exactly what share of Russia's estimated $640 billion hard currency coffers will be paralysed by the move, but European officials said that at least half of it will be affected.
The move will dramatically raise pressure on the ruble by undermining the financial authorities' ability to conduct hard currency interventions to prevent the ruble from sinking further and triggering high inflation. The ruble has sharply dived in early Monday trading.
The Central Bank also ordered a slew of measures to help the banks cope with the crisis by infusing more cash into the system and easing restrictions for banking operations. At the same time, it temporarily barred non-residents from selling the government obligations to help ease the pressure on ruble from panicky foreign investors eager to cash out.