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Rouble Plunges And Stocks Slide With Putin Recognizing Separatist Regions In Ukraine

Rouble Plunges And Stocks Slide With Putin Recognizing Separatist Regions In Ukraine
Russian President Vladimir Putin on Monday urged to immediately recognize two separatist territories in eastern Ukraine, which resulted in the rouble falling below 80 versus the US dollar for the first time in more than a year, while equities dropped to their lowest levels in over a year.
A decree was that recognized the separatist areas of eastern Ukraine as independent states was signed by Putin on Monday, raising the stakes in a regional crisis that the West worries may devolve into war. find out more
During Putin's extended televised address to the Russian country, the rouble plunged as low as 80.0650 against the dollar, but recovered some losses once Putin revealed his decision, which he indicated would be supported by the Russian people.
The dramatic decrease in the rouble from roughly 70 to the greenback witnessed only four months ago is projected to exacerbate already high inflation, which is one of Russians' top worries, and further erode the country's already deteriorating living conditions.
The rouble has dropped 2.7 per cent to 79.37 versus the dollar at 1956 GMT. Earlier in the session, it had reached a high of 76.1450.
The rouble has fallen 2.6 per cent against the euro, to 89.79, after touching 90.7850, a high last reached in April 2021.
Stocks plummeted to their lowest levels since early November 2020, while bond rates, which move inversely to prices, soared to their highest level since January 2016.
The RTS index, which is priced in dollars, fell 13.2 per cent to 1,207.5 points, while the MOEX Russian index, which is denominated in roubles, down 10.5 per cent to 3,036.9 points.
The 10-year benchmark OFZ bond yield set a new high of 10.64 per cent. In addition, the cost of insuring Russia's government debt against default has risen to its highest level since early 2016, and both Moscow and Kyiv's sovereign dollar bonds have fallen in value.
Analysts at Goldman Sachs said it was increasingly likely that geopolitical concerns in the Ukraine-Russia stalemate were beginning to have a significant influence on global assets.
They said that comparing the rouble to its high-yielding developing market rivals provided a clear indication of how much risk premium was still built into the rouble.
"On that basis, our latest estimates would put the risk premium from recent escalation at 9% based on Friday’s closing prices," Goldman Sachs said.
The prospect of a possible summit between Putin and US President Joe Biden, as well as upcoming talks between the United States and Russia's top diplomats on Feb. 24, had given investors a glimmer of hope earlier in the session.
Even though Russia has repeatedly denied of Western accusations that it intends to invade Ukraine, Russian assets have been hit by worries of a military clash that would almost likely result in fresh Western sanctions.
According to three individuals familiar with the situation, Washington has drafted an initial package of penalties on Russia that includes prohibiting US financial institutions from processing transactions for key Russian banks.
Sberbank and VTB, two of Russia's largest banks, saw their shares fall 20 per cent and 17 per cent respectively, underperforming the market.
Rosneft, the world's largest oil company, saw its stock plummet 13.3 per cent.

Christopher J. Mitchell

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