Market Wire - EU Bans All Transactions With Russia's Central Bank
Karl Schamotta - Chief Market Strategist, firstname.lastname@example.org
The European Union has approved banning all transactions with the Central Bank of Russia - a move which will largely prevent the use of reserves in defending the exchange rate on international markets, and is likely to result in a cascading freeze in liquidity conditions as financial institutions play a game of “hot potato” with ruble transactions.
In a statement published on the European Commission website, President Ursula von der Leyen said the 27-member organization would “ban the transactions of Russia's central bank and freeze all its assets, to prevent it from financing Putin's war”.
On a cash basis, the currency has fallen precipitously, with banks in Moscow quoting between 150 and 170 rubles per dollar, down massively from the 83 offered on Friday. Traders expect the exchange rate to go into free-fall when Australian interbank markets open, with short-term forecasts ranging from 150 to 200 - or worse.
We expect Argentina-style currency controls to be imposed in the coming days, with an official exchange rate used for domestic transactions, while rates available on international markets are far lower.
While the move is likely to isolate the country further and put pressure on the Putin regime, it also represents a human tragedy, with Russian households set to experience a devastating loss in purchasing power - a loss unequaled since the fall of the Soviet Union.