Political turmoil has sent shock waves across the Russian economy. Moscow stock markets opened on Monday with the country’s benchmark index recording its biggest decline in five years.
The rouble fell to an all-time low while the central bank unexpectedly raised its key lending rate to 7 percent from 5.5 percent.
“Of course investors could not help notice the foreign policy events, global events which happened over the weekend when markets closed. It had an impact on the rouble. The currency is going down at the Moscow exchange both against the dollar and against the euro. But the timely reaction from the central bank that raised a key interest rate made an immediate impact,” explained Moscow Exchange spokesman Nikita Bekaso.
Analysts predict Monday’s sharp decline could plummet further, with one saying there was a sell-off of everything and investors were acting with a “special fervour”.
It’s reported the Russian Central Bank has sold up to $10 billion reserves to support the rouble as it hit a record low.
Many exchanges were not prepared for the higher demand on the dollar with some private ones reporting they had run out of the currency.
It came at a time when the central bank has been striving to rein in inflation and ease currency swings.
“I don’t really have any positive feelings – nothing good really. I think the reasons for what has happened are quite clear. The political situation, a shaky economic situation and low GDP growth,” said one shopper in Moscow.
The international reaction to the political turmoil in Ukraine could weigh heavily on the Russian economy. The threat of sanctions may lead to demand for the country’s assets drying up and a sell-off in the currency deepening.