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Rouble sinks, stocks plunge as Russia recognises Ukraine breakaway regions

Published 02/21/2022, 07:18 AM
Updated 02/21/2022, 03:36 PM
© Reuters. FILE PHOTO - A customer hands over Russian rouble banknotes to a vendor at a market in Omsk, Russia February 18, 2022. REUTERS/Alexey Malgavko

© Reuters. FILE PHOTO - A customer hands over Russian rouble banknotes to a vendor at a market in Omsk, Russia February 18, 2022. REUTERS/Alexey Malgavko

By Alexander Marrow

MOSCOW (Reuters) -The rouble tanked on Monday, slipping past 80 against the dollar, while stocks plunged to their lowest in over a year as Russian President Vladimir Putin called for the immediate recognition of two breakaway regions in eastern Ukraine.

Putin signed a decree recognising the breakaway regions in eastern Ukraine as independent entities, upping the ante in a regional crisis the West fears could erupt into war.

The rouble fell to as low as 80.0650 against the dollar during Putin's lengthy televised address to the Russian nation but pared some losses as Putin announced his decision, which he said would find support among Russian people.

The sharp drop in the rouble from levels around 70 to the greenback seen just four months ago is expected to fuel already high inflation, one of the main concerns among Russians, which would dent the country's already falling living standards.

By 1956 GMT, the rouble fell 2.7% to 79.37 against the dollar. It had been as strong as 76.1450 earlier in the session.

Against the euro, the rouble had lost 2.6% to 89.79 after hitting 90.7850, a level last seen in April 2021.

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 finished the day 13.2% lower at 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 (NYSE:GS) 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 U.S. President Joe Biden, as well as upcoming talks between the United States and Russia's top diplomats on Feb. 24, had given investors a glimmer of hope earlier in the session.

Despite Moscow's repeated denials of Western statements saying 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 U.S. financial institutions from processing transactions for major Russian banks, three people familiar with the matter told Reuters.

© Reuters. FILE PHOTO: A vendor counts Russian rouble banknotes at a market in Omsk, Russia February 18, 2022. REUTERS/Alexey Malgavko

Shares of Russia's top banks Sberbank and VTB fell 20% and 17% respectively, underperforming the wider market.

Oil major Rosneft's shares also dropped 13.3%.

Latest comments

American market will be high and green! The USA is not even 1% affected by Russians and Ukrainians who are also Russians...
just reading comments, it is all BS, Russia don't need Ukrainian territory, all this "recognition " is a payback or revenge to Zelenski cuz he call on Russia sanctions in Munich conference, I guess he made them angry,
from Trump's previous actions and statements, and trump was still president, what we see now taking place, would have already happened.
Following putins logic, Siberia should then be recognised as Mongolian, Karelia as belonging to Finland and north western Russia should be granted to the indigenous Sami people
actually there was a Far Eastern Republic with vladivostok on the east coast of Siberia. the red army took it over and made it a part of the Soviet empire. the people there aren't your typical brainwashed Russian and think for themselves. a very interesting place.
then there's Finland, the little country that gave the Russian army a bloodynose when they tried to dismantle Finland
I wonder if all this would be happening right now if trump was still the president?
Request Putin Sir to stop loss of money & blood pl
Putin is Bidens daddy. This weak administration is most likely what compelled Russia to consider invading as opposed to 2 or 3 years ago.
Quite the opposite, actually. Trump wanted to dismantle NATO for Putin's benefit alone, and Putin's benefit alone.
 ..Trump wanted Nato members to contribute their agreed share of responsibility. The burden of Nato falls unfairly on the US. If Europe doesn’t care about Russian  why should the USA. Why is Putin doing this now and not when his “benefactor” was in power.
 Wanting to dismantle NATO and wanting members to pay their "fair share" are two very different things. Putin has been "doing this" since at least 2014 when his Ukrainian puppets were ousted from power. He is patient, and knows he will outlast any democratically elected leader of any free country. He perceived no threat from Trump, and so he had no imperative to act.
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