* Central bank raises lending rates by 1.5 points;
* Central bank spends $10 billion to prop up rouble
* Rouble down 2.0 percent to 36.50 against dollar
* MICEX market capitalisation down $60 billion
* Follows Putin's claim of right to invade Ukraine
By Lidia Kelly and Oksana Kobzeva
MOSCOW, March 3 Russian stocks and bonds
plummeted on Monday and the central bank hiked interest rates,
burning its way through as much as $12 billion of its reserves
to prop up the rouble as markets took fright at the escalating
tension with neighbouring Ukraine.
Investors were ditching all Russian assets alike - the
rouble, stocks and bonds. The market capitalisation of the
Russian rouble-denominated MICEX stock index fell some
$60 billion since Friday, more than the $51 billion Russia spent
on the Winter Olympics in Sochi last month.
The Ukrainian hryvnia has firmed since curbs were imposed on
deposit withdrawals last week, but Ukrainian eurobonds fell
Russia's central bank unexpectedly raised its key lending
rate - the one-week repurchasing agreement - to 7 percent from
5.5 percent, in an attempt to stem capital flight.
The central bank did not mention Ukraine in its statement,
but said the decision to raise rates was aimed at preventing
"risks to inflation and financial stability associated with the
recently increased level of volatility in the financial
The central bank said separately it had changed its rules
for the rouble's managed float by raising the amount needed to
shift the currency's trading corridor by nearly fivefold to $1.5
billion, saying again it was a move "to prevent risks to
financial stability by limiting exchange rate fluctuations".
ING Bank estimated that the central bank spent $10.5-$12
billion, or 2 percent, of its gold and foreign exchange reserves
keeping the rouble from spiralling down too fast.
"It goes without saying that the extent to which (central
bank moves are) successful will depend largely on political
rather than economic developments," Neil Shearing, chief
emerging markets economist at Capital Economics, said.
The rouble closed 2 percent down at 36.50 against the dollar
and 1.6 percent lower at 50.38 against the euro
, its at all-time lows.
The MICEX index of Russian shares tumbled 10.8 percent to
close at 1,288.8 points and the dollar-denominated RTS
collapsed 12 percent to 1,115.1 points.
"Frightened by the situation around Ukraine, investors held
a selling spree of Russian assets," said Dmitry Kulakov, head of
equity trading at Olma investment house.
Deputy Economy Minister Andrei Klepach told Reuters on
Monday that he expects "hysteria" on the markets to subside, but
it was uncertain when that would happen.
"What lies ahead of us is a period of more confrontation and
difficulties. For us, that will mean more complicated relations
with the European Union, the (United) States, with all the
resulting consequences," he said.
Ukraine called up military reserves and Washington
threatened to isolate Russia economically after President
Vladimir Putin said he had the right to invade his neighbour in
Moscow's biggest confrontation with the West since the Cold War.
The West has been talking about sanctions, but some
investors and economists say moves such as limiting trade with
Russia are some way off. Europe remains hugely dependent on
Russia's energy, importing a third of its gas from Russia.
And while trade between the United States and Russia is
limited, some U.S. companies, such as ExxonMobil and
Boeing, have a large presence in Russia.
"Is Russia going to be cut off from the world? That is very
unlikely given what Russia provides to the world, which are oil,
gas, raw materials," Alexis Rodzianko, president of the American
Chamber of Commerce in Russia, said.
"Sanctions are less than absolutely likely because sanctions
hurt both sides, maybe even the side applying the sanctions more
than the side being sanctioned."
Still, market players, fearing broader consequences, were
selling stocks, including major blue chips. Gazprom
lost 13.9 percent, while shares in state bank Sberbank
were down nearly 15 percent and VTB fell 17.5 percent.
Russia's oil major Rosneft lost an estimated $5
billion in market capitalisation on Monday. This suggests that
British BP, which holds a 19.75-percent stake in Rosneft,
has lost nearly $1 billion.
"The Russian market has always been dependent on foreign
investors," said Andrei Kuznetsov, strategist at Sberbank CIB in
Moscow. He estimates about 70 percent of Russian freely traded
shares is controlled by foreigners and a big portion of
foreigners - about 40 percent - is from the United States.
Konstantin Gulyaev, chief market analyst at Capital
investment house in Moscow, said Monday's market behaviour was
"The most important for our market is that the 'Ukraine
factor' does not acquire some global factor, as it was in 2008
when after the military conflict in Georgia, came the crash of
Lehman Brothers," Gulyaev said.
The impact of the central bank's rate rise on the rouble
currency, which had lost nearly 8 percent against the dollar
before Putin's declaration, remains doubtful. Traders said the
central bank has been offering $1 billion to prop up the rouble
every time the currency falls two-three kopecks.
The central bank discloses its interventions amount with a
two-day lag, but it confirmed on Monday that is has "increased
its involvement" in the foreign currency market.
The Central Bank First Deputy Governor Ksenia Yudaeyva said
the bank may boost its presence in the market further and that
it still has "big room" to raise interest rates.
For now, the central bank seems well-equipped to defend the
currency, with $493.4 billion in gold and foreign exchange
reserves at its disposal, but Monday's estimated $10 billion
spend added up to a 2 percent splurge in one day.
Traders said that if it weren't for the central bank
intervention, the rouble could have weakened to as far as 37.5
roubles per dollar. Credit Suisse sees the rouble weakening
beyond 37 roubles per dollar in coming days.
Many privately run exchange booths, where the spread between
buying and selling dollars increased up to tenfold from an
average of 20 kopecks over the weekend, ran out of the
greenback, with Russians rushing to exchange their roubles.
"We were not ready for this, we have not stocked up," said a
teller at a small exchange, adding that her booth, which is open
24 hours a day, ran out of dollars by Sunday morning.