MOSCOW: The rouble hit a near two-year low and Russian stocks slumped on Tuesday as President Vladimir Putin ordered the deployment of troops to two breakaway regions in eastern Ukraine after recognising them as independent.
Putin's announcement drew immediate international condemnation and the West is now expected to announce new sanctions against Russia on Tuesday.
Possible measures could target major financial institutions, blocking Russia's access to global electronic supplies or steps designed to curb its energy firms.
The volatile rouble fell 1.1% to 80.64 against the dollar as of 0737 GMT after hitting 80.97, a level last seen on March 23, 2020.
Russian Rouble sinks, stocks plunge
The central bank said it was ready to take measures to ensure financial stability, without further elaboration.
Against the euro, the rouble weakened 0.9% to 90.96, after earlier hitting 91.44, its weakest since April 2021.
The rouble extended Monday's losses when it suffered its biggest one-day drop since the outbreak of the COVID-19 pandemic.
Russian markets plunged on Western fears that Putin's move to recognise the independence of the two regions collectively known as the Donbass and send in forces to "keep the peace" may presage a major war.
"It was nothing but a disaster yesterday - news that the conflict with Ukraine in Donbass could be turning hot triggered a massive sell-off in all types of assets," BCS Global Markets said in a note.
Russia has repeatedly rejected Western assertions that it may be planning to invade neighbouring Ukraine, but its assets have been hammered by fears of a military conflict that would almost certainly trigger sweeping new Western sanctions against Moscow.
The United States said it would halt US business activity in the breakaway regions and ban import of all goods from those areas, but said those measures were separate from sanctions Washington and its allies have prepared should Russia launch a full-scale invasion of Ukraine.
Russian OFZ bonds, which used to be popular among foreign investors thanks to their lucrative yields, fell further.
Yields on 10-year OFZ bonds, which move inversely with prices, hit their highest since early 2016.
Brent crude oil, a global benchmark for Russia's main export, was up 2% at $97.40 a barrel but that did not support Russian assets. When oil prices were last near current levels in September 2014, the rouble hovered near 40 to the dollar.
The dollar-denominated RTS index fell 6.4% to 1.130.3 points, its lowest since November 2020.
The rouble-based MOEX Russian index was 4.6% lower at 2,899.2 points.
"Today the market direction will be set by the West's decision on sanctions, and a second round of falling could not be ruled out," Sinara Investment Bank said in a note.
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