Moscow stock market falls by 10pc as finances take a hit over Ukraine crisis
Published 04/03/2014 | 02:30
Russia took a financial hit over its military intervention in neighbouring Ukraine, with its markets and currency plunging as President Vladimir Putin's forces tightened their grip on the Russian-speaking Crimea region.
The Moscow stock market fell by 10pc and the central bank spent $10bn (€7.2bn) of its reserves to prop up the rouble as investors took fright at escalating tensions with the West over the former Soviet republic.
Mr Putin has declared he has the right to invade his neighbour to protect Russian interests and citizens.
The Russian central bank raised its key lending rate by 1.5 percentage points to the highest level since 1998 after the rouble fell to all-time lows against the dollar.
Gazprom's finance chief warned Ukraine that it may hike gas prices from next month, accusing Kiev of a patchy payments record, but said gas transit to Europe was normal.
"There is a risk of international backlash against Russia at a time when the economy faces an increasing need for foreign capital inflows," said Gillian Edgeworth, chief economist for emerging Europe, the Middle East and Africa at UniCredit in London.
"This uncertainty risks a further escalation in domestic capital outflow."
Yesterday's decision by Russia's central bank "is intended to prevent inflation and financial-stability risks connected with the recent high volatility in the financial markets", it said. The board will meet on March 14 as planned, according to the statement.
It was the biggest increase in a Russian benchmark rate since June 1998, less than two months before Russia defaulted on domestic sovereign bonds and devalued the currency.
The refinancing rate used to be the central bank's main reference.
In February, the regulator signalled it was prepared to tighten monetary policy if rouble weakness adds to inflation risks, while extending the interest-rate pause to 17 months.
Foreign reserves fell to a three-year low of $490bn on February 7, a week after Deputy Economy Minister Andrey Klepach said that capital outflows may reach $35bn in the first quarter, more than half of the $63bn that left Russia in all of 2013.
"The escalation of the Ukraine crisis... represents a major shock to sentiment towards risky assets," Benoit Anne, head of emerging-markets strategy at Societe Generale in London, said in a note.
"We doubt at this stage that this will be enough", he said of the rate increase.
Investors across the globe scurried for relative safety yesterday, pushing stocks down sharply and lifting gold to a four-month high. (Bloomberg and Reuters)