Russians wary that sanctions would deal a crippling blow to the economy have been flocking to banks and ATMs for days, with reports in social media of long lines and machines running out.
People in some central European countries also rushed to pull money from subsidiaries of Russia’s state-owned Sberbank after it was hit with international sanctions.
“It’s going to ripple through their economy really fast,” said David Feldman, a professor of economics at William & Mary in Virginia. “Anything that is imported is going to see the local cost in currency surge. The only way to stop it will be heavy subsidization.” The Russian government will have to step in to support declining industries, banks and economic sectors, but without access to hard currencies like the U.S. dollar and euro, they may have to resort to printing more rubles. It’s a move that could quickly spiral into hyperinflation.
The bank hiked the benchmark rate to 20% from 9.5%. That followed a Western decision Sunday to freeze Russia’s hard currency reserves, an unprecedented move that could have devastating consequences for the country’s financial stability. Kremlin spokesman Dmitry Peskov described the sanctions that included a freeze on Russia’s hard currency reserves as “heavy,” but argued Monday that “Russia has the necessary potential to compensate the damage.”
The ruble sank about 30% against the U.S. dollar early Monday but steadied after the central bank’s move. Earlier, it traded at a record low of 105.27 per dollar, down from about 84 per dollar late Friday, before recovering to 94.43.
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