No Russian assets were left unscathed, with the rouble slipping past 80 against the United States dollar.
The Russian rouble tanked on Monday, slipping past 80 against the United States dollar, while Russian stocks plunged to their lowest in over a year as 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 that 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 declining living standards.
By 19:56 GMT, the rouble fell 2.7 percent 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 percent 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 percent lower at 1,207.5 points and the rouble-based MOEX Russia Index lost 10.5 percent to 3,036.9 points.
Yields on Russia’s 10-year benchmark OFZ bonds hit a high of 10.64 percent. The cost of insuring Russia’s 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 percent 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 February 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 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 20 percent and 17 percent respectively, underperforming the wider market.
Oil major Rosneft’s shares also dropped 13.3 percent.