Russian stock indexes fell sharply Tuesday morning, after Moscow recognised the independence of Ukraine’s two separatist regions and President Vladimir Putin sent troops into the Western-backed country.
The dollar-denominated RTS index was down 10.8% at 0713 GMT, and 32.5% since the start of the year, while the rouble-based MOEX fell by 8.8%.
The Russian currency also plunged to near a two-year low, suffering its biggest one-day drop since the outbreak of the Covid-19 pandemic, with the rouble trading at more than 91 to the euro and 80.7 to the dollar.
On Monday evening, Putin recognised the independence of the separatist-held Donetsk and Lugansk regions, before ordering the deployment of troops to the two breakaway regions in eastern Ukraine.
The move, which it said was aimed at “keeping the peace”, drew immediate international condemnation. The United States and Europe are now expected to announce new sanctions against Russia on Tuesday.
Possible measures could target major financial institutions, blocking Russia’s access to global electronic supplies or steps designed to curb its energy firms.
The central bank said it was closely monitoring the situation.
“The Bank of Russia keeps the situation on the financial market under control and is ready to take all necessary measures to maintain financial stability,” it said.
“It was nothing but a disaster yesterday – news that the conflict with Ukraine in Donbass could be turning hot triggered a massive sell-off in all types of assets,” BCS Global Markets said in a note.
Russia has repeatedly rejected Western assertions that it may be planning to invade neighbouring Ukraine, but its assets have been hammered by fears of a military conflict that would almost certainly trigger sweeping new Western sanctions against Moscow.
The United States said it would halt US business activity in the breakaway regions and ban import of all goods from those areas, but noted that those measures were separate from sanctions Washington and its allies have prepared should Russia launch a full-scale invasion of Ukraine.
Russian OFZ bonds, which used to be popular among foreign investors thanks to their lucrative yields, fell further. Yields on 10-year OFZ bonds RU10YT=RR, which move inversely with prices, hit their highest since early 2016.
Brent crude oil, a global benchmark for Russia’s main export, was up 2% at $97.40 a barrel but that did not support Russian assets. When oil prices were last near current levels in September 2014, the rouble hovered near 40 to the dollar.
“Today the market direction will be set by the West’s decision on sanctions, and a second round of falling could not be ruled out,” Sinara Investment Bank said in a note.
• AFP and Reuters with additional editing by Jim Pollard
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