* Cbank raises key lending rates by 1.5 percentage points;
* Rouble down 2.0 percent to 36.41 against dollar
* MICEX down 9 percent, RTS loses 10.1 percent
* Slide follows Putin's declaration of right to invade
By Oksana Kobzeva and Lidia Kelly
MOSCOW, March 3 Russian assets tumbled and the
central bank hiked interest rates on Monday as markets took
fright at the escalating tensions with neighbouring Ukraine.
Investors were ditching all Russian assets alike - the
rouble, stocks and bonds. The Ukrainian hryvnia has firmed since
curbs were imposed on deposit withdrawals last week, but
Ukrainian eurobonds fell sharply.
Russia's central bank unexpectedly raised its key lending
rate - the one-week repurchasing agreement - to 7 percent from
5.5 percent, the central bank.
It did not mention Ukraine in its statement, but said the
decision to raise rates was aimed at preventing "risks to
inflation and financial stability associated with the recently
increased level of volatility in the financial markets".
The rouble was down 2 percent to 36.41 against the dollar
and it was also down 1.2 percent to 50.10 against
the euro, trading at all-time lows.
The rouble-denominated MICEX index of Russian shares
tumbled 9.1 percent to 1,314.8 points and the dollar-denominated
RTS collapsed 10.3 percent to 1,137.1 points.
"There's a sell-off of everything right now," said Artem
Argetkin, a trader at BCS in Moscow, said.
Deputy Economy Minister Andrei Klepach told Reuters on
Monday that he expects "hysteria" on the markets to subside.
"The wave of hysteria will pass, but it is difficult to say
when," Klepach said. "Anyway, what lies ahead of us is a period
of more confrontation and difficulties. For us, that will mean
more complicated relations with the European Union, the States,
with all the resulting consequences."
Ukraine mobilised for war on Sunday and Washington
threatened to isolate Russia economically after President
Vladimir Putin declared he had the right to invade his neighbour
in Moscow's biggest confrontation with the West since the Cold
The West has been talking about sanction, but some investors
and economists reckon that such things as limiting trade with
Russia, are still a far way off. Europe remains hugely depend on
Russia's energy, importing a third of its gas from Russia.
And while the trade between the United States and Russia is
limited, there is a huge presence of some U.S. companies, such
as ExxonMobil and Boeing, in Russia.
"Is Russia going to be cut off from the world? That is very
unlikely given what Russia provides to the world, which are oil,
gas, raw materials," Alexis Rodzianko, president of the American
Chamber of Commerce in Russia, said.
"Sanctions are less than absolutely likely because sanctions
hurt both sides maybe even the side applying the sanctions more
than the side being sanctioned."
Still, market players, fearing broader consequences, were
selling stocks, including major blue chips. Gazprom
losing more than 10 percent. Shares in state banks Sberbank
were down 8.1 percent and VTB fell 11
"First of all, there is sentiment, and then there are
sanctions," Vladimir Kolychev, an analyst with VTB Capital. "My
base scenario is that this tension will gradually subside."
Konstantin Gulyaev, chief market analyst at Capital
investment house in Moscow, said Monday's market behaviour was
"The most important for our market is that the 'Ukraine
factor' does not acquire some global factor, as it was in 2008
when after the (Russian) military conflict in Georgia, was the
crash of the Lehman Brothers," Gulyaev said.
The impact of the central bank's rate rise on the rouble
currency, which had lost nearly 8 percent against the dollar
already before Putin's declaration, remains doubtful.
Traders said the central bank has been offering $1 billion
to prop up the rouble every time the currency falls two-three
"And the central bank does it quite openly and absolutely
explicitly," said Pavel Demeschik, a dealer at ING Bank in
Moscow. "The central bank is practically the only seller in the
currency market right now."
There has been no statement from the central bank on
possible changes to its currency market interventions scheme.
Demeschik said that if it weren't for the central bank's
presence on the market, the rouble could have weakened to as far
as 37.5 roubles per dollar already today.
The central bank, however, is well-equipped to defend the
currency, having $492.5 billion in gold and foreign exchange
reserves at its disposal.
Many privately run exchange booths, where the spread between
buying and selling dollars increased up to tenfold from an
average of 20 kopecks over the weekend, ran out of the
greenback, with Russians rushing to exchange their roubles.
"We were not ready for this, we have not stocked up," a
teller at a small exchange, adding that her booth, which is open
24 hours a day, ran out of dollars by Sunday morning.
For rouble poll data see
For Russian equities guide see
For Russian treasury bonds see
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