MOSCOW: The rouble lost well over 2% on Monday, diving past 79 against the dollar, while stocks plunged to their lowest in over a year after Western fears Russia may invade Ukraine hit new heights as Moscow discussed the fate of two breakaway regions.
After an extraordinary meeting of his Security Council, President Vladimir Putin said he was considering a request by two regions of eastern Ukraine held by Russian-backed separatists to be recognised as independent - a move that could give Moscow a reason to openly send troops.
By 1622 GMT, the rouble was down 2.2% against the dollar at 78.98, its weakest since Jan. 27, touching a session-low of 79.69. It had been as strong as 76.1450 earlier in the session.
The rouble had lost 2.3% to 89.55 against the euro , its weakest point since Jan. 26.
No Russian assets were left unscathed, with stocks cascading to their lowest since early November 2020 and bond yields, which move inversely to prices, soaring to their highest since January 2016.
The dollar-denominated RTS index dived 13.2% to 1,207.5 points and the rouble-based MOEX Russian index lost 10.5% to 3,036.9 points.
Yields on Russia’s 10-year benchmark OFZ bonds hit a high of 10.64%. The cost of insuring Russia sovereign debt against default also surged to its highest since early 2016 and both Moscow and Kyiv’s sovereign dollar bonds tumbled.
Goldman Sachs analysts said it now seemed plausible that geopolitical risks in the Ukraine-Russia standoff were starting to have a meaningful impact on global assets.
Comparing the rouble with its high-yielding emerging market peers was a good measure of the amount of risk premium still priced into the rouble, they said.
“On that basis, our latest estimates would put the risk premium from recent escalation at 9% based on Friday’s closing prices,” Goldman Sachs said.
DIPLOMACY VS
SANCTIONS
The prospect of a possible summit between Putin and US President Joe Biden, as well as upcoming talks between the US and Russia’s top diplomats on Feb. 24, had given investors a glimmer of hope earlier in the session.
Despite Moscow’s repeated denials that it plans to invade neighbouring Ukraine, Russian assets have been hammered by fears of a military conflict that would almost certainly trigger sweeping new Western sanctions against Moscow.
Washington has prepared an initial package of sanctions against Russia that includes barring US financial institutions from processing transactions for major Russian banks, three people familiar with the matter told Reuters.
Shares of Russia’s top banks Sberbank and VTB fell 17.1% and 17.7% respectively as of 1622 GMT, underperforming the wider market. Oil major Rosneft’s shares also dropped 15.4%.