Russian ruble coins are seen in this illustration taken February 24, 2022. REUTERS/Dado Ruvic/Illustration

Join now for FREE unlimited access to Reuters.com

Register

MOSCOW, Feb 25 (Reuters) – The ruble firmed on Friday after hitting an all-time low in the previous session when Russia began invading Ukraine, while stock indices rose sharply after their strongest drop in a day never recorded.

No Russian asset was spared Thursday’s strong selling. Fighting in Ukraine continued on Friday. Read more

At 0722 GMT, the ruble gained 2.3% against the dollar to 83.30 after hitting a record low of 89.60 in highly volatile trading on Thursday.

Join now for FREE unlimited access to Reuters.com

Register

“We expect the dollar to remain in a range of 83 to 85 to the dollar,” Promsvyazbank said in a note.

Against the euro, the ruble strengthened 2.3% to trade at 93.49, after hitting an all-time low of 101.03 in the interbank market on Thursday.

The currency was supported by the first monetary interventions by the Russian central bank since 2014, when Russia annexed Crimea from Ukraine. Read more

INFLATION

The market expects more action from the central bank, which must deal with inflationary risks. The weakening of the ruble after the invasion of Ukraine should weigh on the standard of living in Russia and fuel inflation already close to 9%.

The central bank may now proceed with an unanticipated interest rate hike as it did at the end of 2014, when it raised the key rate to 17% from 10.5% late overnight in the middle of a ruble plummeting, analysts say.

“We believe a rapid CBR hike of 400 basis points or more is likely with the policy rate above 13%,” Morgan Stanley said in a note.

Alor Brokerage said the central bank could raise the rate by 2-3 percentage points in the near future, with the aim of keeping the ruble close to 80 to the dollar and 90 to the euro.

The central bank, which is targeting 4% inflation, was expected to consider raising rates at its next board meeting on March 18.

The market is also digesting tough new Western sanctions against Russia.

The measures have stopped disconnecting Russia from the SWIFT global interbank payments system or targeting its oil and gas exports, and Russia has spent the past seven years building formidable financial defenses.

“However, the possibility (of a disconnection from SWIFT) remains and the uncertainty is hurting the market more than the worst sanctions – the focus will be on developments in Ukraine, the potential for negotiations and any further sanctions,” said BCS Brokerage in a note.

But analysts said the Russian economy is unlikely to withstand the onslaught of coordinated sanctions from the West in the long term. Read more

Russian stock indices pared their heavy losses after Thursday’s record one-day drop.

The dollar-denominated RTS index (.IRTS) jumped 27.5% to 947.7. Russia’s rouble-based MOEX index (.IMOEX) gained 22.5% to 2,520.9 points, moving away from its weakest level since early 2016 at 1,681.55 which it hit on Thursday. Read more

Join now for FREE unlimited access to Reuters.com

Register

Reporting by Andrey Ostroukh; Editing by Kim Coghill and Gareth Jones

Our standards: The Thomson Reuters Trust Principles.