Russia has more than doubled its key interest rate after the rouble slumped by 30% against the US dollar.
Bank of Russia said it raised the rate to 20% from 9.5% to help cushion the impact on prices of the rouble’s slide.
It came as the UK, along with the US and EU, cut off Russia’s banks from financial markets in the West.
The Russian currency hit a new record low after it emerged at the weekend that some of the country’s banks will be banned from using the Swift international payment system.
On Sunday, Russia’s central bank appealed for calm amid fears that there could be a run on the country’s banks.
The growing tensions also helped to push the price of Brent crude oil above $100 a barrel.
The move by the European Union, United States and their allies to cut off a number of Russian banks from Swift is the harshest measure imposed to date on Moscow over the Ukraine conflict.
The assets of Russia’s central bank will also be frozen, limiting the country’s ability to access its overseas reserves.
The intention is to “further isolate Russia from the international financial system”, a joint statement said.
Russia is heavily reliant on the Swift system for its key oil and gas exports.
Investors were also wary on Monday after Vladimir Putin ordered Russia’s military to put its deterrence forces, which include nuclear weapons, on “special alert”.
Last week, Moody’s said it was reviewing Russian bonds to possibly downgrade them to ‘”junk”, which would put Russia in a league of riskier countries that usually have to pay more to borrow. Rival credit ratings agency S&P has already lowered the country to junk status.
Over the weekend, Russia’s central bank issued an appeal for calm amid fears that the new financial sanctions could spark a run on its banks.
It said it “has the necessary resources and tools to maintain financial stability and ensure the operational continuity of the financial sector”.
Videos on social media appeared to show long queues forming at cash machines and money exchanges in Moscow.