“Russia’s central bank unexpectedly raised its policy interest rate sharply to 7% from 5.5% previously, effective Monday morning. The Bank of Russia’s move came as the Russian ruble plunged to record lows following Moscow’s intervension in Ukraine, with the U.S. dollar hitting an all-time high of 37.00 rubles, and the euro setting its own record of 50.99 rubles. The decision is meant to avoid emerging risks to inflation and financial stability associated with the recently seen increased volatility on the financial markets. The central bank described the move as temporary.”
The market has already been quite bearish on Russian assets this year, particularly the ruble. The overall view is that the carry-trading part of the market is getting hit hard. Of the ten largest months of capital inflows into equity funds, three of them occured last year, four in 2000 and one in 2007. Sooner or later there will be outflows accompanied with a greater move in the market. Look out for late day weakness as a sign of withdrawals from funds.