The Russian rouble tumbled to a record low in extremely volatile trade on Monday, losing a third of its value so far this year, but central bank foreign currency intervention and an emergency rate hike helped its trim losses.
Russian markets took a hit after Western countries stepped up sanctions in retaliation for Russia's invasion of Ukraine, the biggest assault on a European state since World War Two. In response, President Vladimir Putin ordered his military command to put nuclear-armed forces on high alert on Sunday.
At 1240 GMT the rouble was trading at 98 to the U.S. dollar , down 18% from Friday's close, and at 100.10 per euro, 7.6% lower, with central bank selling of foreign currency set to limit its losses in Moscow trade.
It had earlier touched a record low of 120 to the dollar on electronic currency trading platform EBS.
The rouble pared losses after the central bank raised its key interest rate to 20%, having started intervening in FX markets on Feb. 24, when Russia began its invasion of Ukraine.
Moscow calls its actions in Ukraine a "special operation" that it says is not designed to occupy territory but to destroy its southern neighbour's military capabilities and capture what it regards as dangerous nationalists.
Russian Rouble sinks, stocks plunge
"The rate hike to 20% can very substantially limit the ability to open positions against the rouble... But new shocks from the geopolitical sphere and sanctions can lead to unpredictable spikes in supply and demand that can disrupt the balance," said Maxim Biryukov, senior analyst at Alfa Capital.
Stocks trading on the Moscow Exchange was closed.
State support vs sanctions
Russia's central bank announced a slew of measures on Sunday to support domestic markets as it scrambled to manage the fallout of the sanctions that will block some Russian banks from the SWIFT international payments system.
The central bank said it would resume buying gold on the domestic market, launch a repurchase auction with no limits and ease restrictions on banks' open foreign currency positions.
Analysts at Rabobank had warned before the Moscow Exchange opened that the sanctions on currency reserves removed what little support the rouble had.
"Even the gold is not liquid if nobody can use FX in exchange for it. There will be a complete collapse in the rouble today," they wrote.
Ray Attrill, head of FX strategy at National Australia Bank, said in a note on Sunday, "a collapse in the rouble appears inevitable on Monday morning", and there was an increased risk of a Russian debt default as a result of the weekend developments.
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