The Russian ruble plunged back to $117, evoking a similar magnitude to the currency’s collapse when Russia defaulted on its debt in 1998.
As Russia’s central bank more than doubled its interest rates and announced several capital controls, the currency has been napping since the country attacked Ukraine last week.
Crippling Western sanctions, including freezing Russia’s foreign exchange reserves and excluding Russian banks from international transactions, are starting to bite.
Moody’s and Fitch lowered Russia’s rating to a “junk” rating on Thursday after those tough sanctions.
Ordinary Russian citizens are faced with the prospect of higher inflation in a country that has experienced more than one currency disaster in the post-Soviet era.
Russians wary that sanctions would deal a crippling blow to the economy have been flocking to banks and ATMs for days, with social media reports of long lines and machines running out.
The ruble fell more than 10 percent against the dollar to $117,
Though it has seen through the news flow, at one point the currency plunged nearly 30 percent to record lows and is well below the $75 it traded before Russia sent troops to its neighbor last week.
What is especially interesting is the appreciation of the ruble during trading hours in Moscow and its weakness after the Moscow shutdown in recent days.
Counterparty constraints and risks resulting from aggressive sanctions against Russian institutions has led to the emergence of a bipartisan ruble market. Onshore names will be traded with onshore names and offshore with offshore names. The introduction of sanctions against many Russian banks has led to a split in the ruble FX spot market, where yesterday the ruble briefly traded 10-15% weaker in the offshore than the onshore market,” said Chris Turner, Global Head of Markets at ING.
“The onshore USD/RUB price closed around 101 when the offshore price was quoted at 115. It’s hard to see that gap closing in the near term. However, there is a chance that the offshore USD/RUB could be slightly lower being dragged in as Russian exporters are forced to sell their accumulated FX earnings in the coming days – these flows could go through the onshore market as we understand it,” he added.