Rouble Collapses Back To $117, As Russia's Isolation Intensifies

The Russian rouble collapsed back to $117, bringing back memories of a similar scale of slumps in the currency when Russia defaulted on its debt in 1998.

While Russia's central bank more than doubled its interest rates announced several capital key controls, the currency has been whiplashed since the country attacked Ukraine last week.

The crippling Western sanctions, which included freezing Russia's foreign currency reserves and locking out Russian banks from international transactions, are starting to bite.

Moody's and Fitch downgraded Russia's sovereign rating to a 'junk' grade on Thursday following those severe sanctions.

Ordinary Russian citizens face the prospect of higher inflation in a country that has seen more than one currency disaster in the post-Soviet era.

Russians wary that sanctions would deal a crippling blow to the economy have been flocking to banks and ATMs for days, with reports on social media of long lines and machines running out.
 
The rouble fell over 10 per cent against the dollar to $117, 

While it has see-sawed on the news flow, at one point, the currency sank nearly 30 per cent to record lows and is well below the $75 it traded before Russia sent troops into its neighbouring country last week.

What is particularly interesting is the rouble's gains during Moscow trading hours and its weakness after the Moscow close over the last few days.

"The counter-party limitations and risks posed by aggressive sanctions against Russian institutions have seen the emergence of a two-tier rouble market. Onshore names will trade with onshore names and offshore with offshore. The introduction of sanctions against many Russian banks has seen bifurcation emerge in the rouble FX spot market, where the rouble yesterday was briefly trading 10-15% weaker in the offshore than the onshore market," said Chris Turner, Global Head of Markets at ING. 

"The onshore USD/RUB rate closed around 101 when the offshore rate was being quoted at 115. It is hard to see that gap being closed anytime soon. However, there is a chance that the offshore USD/RUB is dragged a little lower as Russian exporters are forced to sell their accumulated FX earnings over coming days - these flows may go through the onshore market as we understand it," he added.