Roubles People stand in line to use an ATM money machine in Saint Petersburg, Russia February 27, 2022. REUTERS/Anton Vaganov
Long queues in Saint Petersburg as Russians rush to withdraw roubles. Photo: Anton Vaganov/Reuters

Russia's central bank has raised its key interest rate from 9.5% to 20% in an attempt to shore up the rouble after it plunged 30% to a record low against the dollar.

The value of the Russian rouble collapsed after the west rolled out fresh sanctions against Russia, including banning some of the country's banks from using the SWIFT international payment system.

The rouble (RUBUSD=X) plunged about 30% against the dollar on Monday as markets opened.

RUBUSD=X. Chart: Yahoo Finance UK
The rouble plunged about 30% on Monday against the US dollar as markets opened. Chart: Yahoo Finance UK

Footage of customers forming long queues to withdraw cash from ATMs in Russia began emerging on social media on Monday morning.

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.

Any UK entity is banned from doing transactions with Russia's central bank, its finance ministry and its wealth fund.

"The UK government will immediately take all necessary steps to bring into effect restrictions to prohibit any UK natural or legal persons from undertaking financial transactions involving the Central Bank of Russia, the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation," the UK government said.

The move will raise pressure on the rouble by undermining the financial authorities’ ability to conduct hard currency interventions to prevent the rouble from sinking further and triggering high inflation.

“External conditions for the Russian economy have drastically changed,” the central bank said in a statement, adding that the rate hike “will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risk”.

In another attempt to support the rouble, the central bank and the finance ministry also jointly ordered Russian exporting companies to sell 80% of their foreign currency revenues on the market.

At the same time, it temporarily barred non-residents from selling the government obligations to help ease the pressure on rouble from panicked foreign investors trying to cash out. This could make it harder for western funds to wind down exposure to Russian-listed companies.

The European Central Bank has warned that several European subsidiaries of the Russian state-owned Sberbank — one of the Russian banks under UK sanctions — were failing or likely to fail due to the reputational cost of the war in Ukraine.

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