Russia raises interest rates to 20%

 Russia raises interest rates to 20%

Russia nearly doubled interest rates, when the ruble today fell 40% against the US dollar.

The Central Bank of Russia has just decided to nearly double the country's basic interest rate, from 9.5% to 20% as the country's currency fell to a record low against the USD. In a statement released today, the agency said the rate hike was "designed to offset the risks of devaluation of the ruble and inflation". Along with the move, it also said it would free up 733 billion rubles ($8.78 billion) in local bank reserves to increase liquidity.

In this morning's trading session, the Russian local currency at one point traded at 117.75 rubles per dollar, down 40% from 83.75 last Friday, according to Bloomberg data. The reason is that last weekend, the US, its European allies and Canada agreed to cut a number of key Russian banks from SWIFT, a system that connects more than 11,000 banks and financial institutions in more than 200 countries and territory.

Bipan Rai, Senior Macro Strategist at CIBC Capital Markets, forecasts that the Russian currency will "drop quite sharply" in the near future. "I don't really have a feeling the ruble is going to bottom out," he said. He predicted that with the scenario of the ruble depreciating too strongly, the central bank of this country may have to raise interest rates in a "very strong" way, and at the same time have to sell gold.

Asian stock and currency markets were also volatile this morning, as investors weighed the impact of new Western sanctions on Russia. Japan's Nikkei 225 is now down 0.3%, after losing 0.8% early in the session. Korea's Kospi index opened slightly lower, then continuously increased and decreased during the session.

The Japanese yen appreciated against the US dollar, to about 115.06 yen per dollar, before weakening to 115.60. Oil prices rose in the morning amid additional investor concerns about supply. The price of Brent crude rose to $105 per barrel shortly after the start of trading, about $7 higher than last week.