Ruble plunges 30% as prices onshore split from those overseas

Russian markets were paralyzed on Monday and traders struggled to price the ruble as international sanctions shook the country’s financial system.  

The Russian currency lost a third of its value in offshore trading at one point and hit an all-time low of 109.185 per dollar in Moscow. Quotes were infrequent and volatile at the start of the session, and traders warned that low liquidity was making it difficult to match buyers and sellers. The central bank canceled local trading altogether in stocks and bonds as the price of Russian-linked shares and debt tumbled overseas.    

In a bid to shield the economy from the toughest penalties deployed to date, the central bank pushed back the start of ruble trading by three hours and hoisted its key rate to 20% in an emergency move early in the day. At the local open, a massive gap formed between rubles quoted in Moscow and prices in international markets. The dislocations were unprecedented in recent memory for a market as big as Russia and underscored how trading is being upended as investors rush to sell. 

Normal volumes picked up later in the session after the central bank allowed the currency to weaken in steps to a level approaching the offshore rate. The ruble then erased some of its losses to trade 13% weaker at 95.4825 rubles per dollar as of 2:41 p.m. in Moscow. 

“There’s so little liquidity that pricing data we can see at the moment doesn’t really mean anything,” said Paul McNamara, a fund manager at GAM Investments. “People are struggling to get out of forwards because no one can tell what will happen in the next month. We think most foreigners have reduced but not eliminated their exposure.”

London-headquartered Standard Chartered Plc took the decision not to quote the ruble or rates with any bank sales counterparty, according to an internal memo to staff reviewed by Bloomberg News. “This is a conservative approach, based on the fact we can’t know who end client may be,” the memo read, saying the measure was in place “until there is further clarity on the impact and scale of international sanctions.”

The bank declined to comment on the note when contacted by Bloomberg. 

The Bank of Russia unleashed a raft of policy measures to try to stabilze the financial system, hiking its key interest rate from 9.5% to 20% and introducing mandatory hard-currency revenue sales for exporters. It also temporarily banned brokers from selling securities held by foreigners starting Monday on the Moscow Exchange, without specifying which securities the ban applies to. 

At one point on Monday, the ruble was listed at 117.933 per dollar in offshore quotes compiled by Bloomberg. The lowest hit in Moscow trading was 109.185.

Sanctions have effectively “closed Russia’s capital account,” said Peter Kinsella, global head of foreign-exchange strategy at Union Bancaire Privee in London. “This means you’re likely to end up with huge differences between offshore and onshore pricing. This is a new paradigm for the ruble.”