Ruble plummets as Russia attempts to prevent run on banks

The ruble plunged to a record low of less than one U.S. cent and most global stock markets declined Monday after Western nations moved to block some Russian banks from a global payments system.

Russia's invasion of Ukraine has caused markets to swing wildly, given the vast potential economic impact, especially on inflation and energy supplies.

Putin's order that Russian nuclear weapons stand at increased readiness to launch ratcheted up tensions with Europe and the United States and revived dormant fears from the Cold War era.

The Russian central bank raised its key rate to 20 per cent from 9.5 per cent in a desperate attempt to shore up the plummeting ruble and prevent a run on banks. That brought a temporary reprieve for the Russian currency, which bounced back to the level it was at last week, but only briefly.

It fell as low as 119 to the U.S. dollar and by midday in Europe was down 14 per cent at 95.75 to the dollar.

The ruble had plunged more than 30 per cent after the move to block Russian banks from the SWIFT global payment system, which provides a secure messaging system to facilitate cross-border money transfers.

Among other things, the sanctions by Western nations are meant to crimp the Russian central bank's access to over $600 billion US in reserves and hinder its ability to support the ruble.

It was unclear exactly what share of Russia's hard currency coffers would be paralyzed by the decision on SWIFT. European officials said that at least half of it will be affected.

A weaker ruble is expected to cause inflation to surge, potentially angering Russians whose budgets will be stretched by soaring prices. It will also add to strains across Russia's financial systems.

"At the moment, the ruble is in a state close to free fall," Alex Kuptsikevich of FxPro said in a report. "At some point in the coming days, we will see the limit of the fall of the ruble, from where it will begin its slow and difficult recovery. But it is hardly possible to pinpoint."

Germany's DAX fell 2.6 per cent to 14,158.00 and the CAC 40 in Paris lost 3.2 per cent to 6,539.54. Britain's FTSE 100 shed one per cent to 7,413.23.

In New York, the future for the S&P 500 was 1.4 per cent lower, and that for the Dow industrials declined 1.2 per cent.

Markets in Asia and Australia appeared to take the latest developments more calmly with slight gains.

"It's all about the Russia-Ukraine situation and evolutions in that situation will drive market sentiment and direction," Jeffrey Halley of Oanda said in a commentary.