MOSCOW: Russia’s central bank more than doubled its key policy rate yesterday and introduced some capital controls as it scrambled to shield the economy from unprecedented Western sanctions that sent the rouble tumbling to record lows.

The main interest rate will rise to 20%, its highest this century, from 9.5% to counter the risks of the rouble’s rapid depreciation and higher inflation, which threaten Russians’ savings.

“External conditions for the Russian economy have drastically changed,” the central bank said, adding that the hike “will ensure a rise in deposit rates to levels needed to compensate for the increased depreciation and inflation risk”.

The monetary authority also ordered companies to sell 80% of their foreign currency revenues, increased the range of securities that can be used as collateral to get loans and temporarily banned Russian brokers from selling securities held by foreigners. It did not specify which securities the ban applies to.

The emergency measures put the central bank on the frontline defending Russia against a campaign by Western allies to isolate it economically following Moscow’s invasion of Ukraine.

The central bank has itself been targeted, with the West seeking to restrict its ability to deploy US$640bil of forex and gold reserves and cut Russia’s major banks off the Swift financial network.

Britain yesterday banned any transactions with the Russian central bank, finance ministry and wealth fund, and said it would prevent Russian companies from issuing transferable securities and money market instruments in the United Kingdom.

Yesterday’s steps by the Russian central bank bolster other measures announced on Sunday, including an assurance that the central bank would resume buying gold on the domestic market.

It will also launch a repurchase auction with no limits and ease restrictions on banks’ open foreign currency positions.

The West’s sanctions are likely to deal a devastating blow to the Russian economy and make it hard for banks and companies to access the international financial system. The rouble plunged nearly 30% to an all-time low versus the dollar yesterday.

Russians queued outside automated teller machines on Sunday, worried the sanctions could trigger cash shortages and disrupt payments.

“A bank run has already started in Russia over the weekend... and inflation will immediately spike massively, and the Russian banking system is likely to be in trouble,” said Jeffrey Halley, Asia-based senior market analyst at OANDA.

Nomura analysts said in a note to clients that fresh reprisal measures by the West against Russia were likely to have wider global implications.

“These sanctions from the West are likely to eventually hurt trade flows out of Russia (around 80% of forex transactions handled by Russian financial institutions are denominated in US dollar), which will also hurt the growth outlook of Russia’s key trading partners including Europe and lead to greater inflationary pressures and risk of stagflation, we think,” they wrote.

Energy major BP opened a new front in the West’s campaign to isolate Russia’s economy.

Its decision to abandon its stake in state oil company Rosneft at a cost of up to US$25bil is the most aggressive move yet by a company in response to Russia’s actions in Ukraine, which Moscow calls a “special operation”.

 - Reuters