Fall in Russian stock market wipes out $250 billion worth – Times of India

Russian assets dwindled as military strikes across Ukraine led to emergency central bank action and investors prepared for the toughest round of Western sanctions, wiped out more than $250 billion in stock market value.
The ruble fell to a record low and the stock fell 45% – their biggest retreat ever. Russian Eurobonds fell, pushing some into troubled territory. The Bank of Russia said it would intervene in the foreign exchange market for the first time in years and take measures to reduce volatility in financial markets.
The military attack on Ukraine hit global markets and sparked yet another battle to avert global risks. Russian assets suffered a major blow after President Vladimir Putin ordered an operation to “demilitarize” the country, prompting international condemnation and a US threat to further “severe sanctions” on Moscow.
“Significant overshooting is possible, and the dollar-ruble at 100 is certainly well in range,” said Ulrich Luchmann, strategist at Commerzbank AG. “I don’t think intervention will be the main tool of choice. They can only prevent excessive overshooting. A hike in rates will soon follow.”
The Russian central bank made no mention of raising interest rates, but said it would provide additional liquidity to banks by offering 1 trillion rubles ($11.5 billion) in an overnight repo auction. Policymakers have increased the benchmark rate by 525 basis points in the last 12 months to contain inflation.
Russia’s sovereign bonds declined, leading some to crisis levels. Ukraine’s debt sank by $2033, raising the yield to 88%, while the local money market was suspended and limits on daily cash withdrawals were imposed.
The ruble fell by 9.4% to 89.60 per dollar in local trade. Currency options see a more than 50% chance of the ruble touching $100 per dollar in the second quarter.
So far, the central bank’s response has been more measured than it was eight years ago when the conflict in Ukraine first erupted.
Policymakers raised rates on the first working day after Russia’s parliament approved the use of its military in Ukraine in 2014. Later that same year, with oil prices falling, the Bank of Russia raised its key rate to 17%. Solving the currency crisis.
According to Piotr Matisse, a senior currency strategist at InTouch Capital Markets Ltd in London, an increase in borrowing costs may be off the table for now, although the decision to increase rates in the future depends on the ruble rent.
Should the ruble “reach relatively quickly and exceed 100” against the dollar, the possibility of a rate hike could come into play, he said.
“The speed and scale of ruble depreciation will be important,” he said. “Currency intervention is the first line of defense and the central bank has accumulated significant FX reserves to allow it to take steps to slow the pace of ruble depreciation. The second line of defense would be an emergency rate hike as seen last in 2014. The ruble was seen at the height of the crisis.
If major Russian companies and banks are targeted by the West, more support may be sought from the central bank. In a late-night statement, US President Joe Biden said he would announce “further results” for Russia later on Thursday, in addition to sanctions unveiled earlier in the week.
Biden on Tuesday set out a partial “first tranche” of sanctions – a modest package that overwhelmed political observers and financial markets – then followed up with additional measures the next day, including sanctions against Nord Stream 2 AG , which created the company. $11 billion natural gas pipeline linking Russia and Germany.
Russia’s central bank, which last conducted a direct currency intervention in 2014, may resort to other measures to calm the market. Its options include the possibility of banning cross-border capital flows and asset purchases, particularly focusing on domestic ruble loans, said Sofia Donets, economist at Renaissance Capital in Moscow.
To bring to the fore the “political motivations” of the central bank, he said, “in the current scenario, it is possible to assume that sanctions will be more and more difficult.” “It makes them less predictable.”