MOSCOW (AFP) – Russia’s emergency midnight move to raise interest rates to 17 per cent failed on Tuesday to arrest the ominous slide of the ruble as the currency set a new all-time record after a brief rally.
The ruble weakened to nearly 67 rubles against the dollar after bouncing back briefly to 61 rubles earlier Tuesday following the central bank’s move to hike interest rates from 10.5 per cent to halt the collapse of the ruble.
The ruble has now lost half its value since the start of the year amid collapsing oil prices and Western sanctions over Russia’s support for the separatist uprising in eastern Ukraine.
The collapse of the ruble reflects what many economists call a crisis of confidence in the Russian economy amid the Kremlin’s confrontation with the West.
The worsening economic outlook presents a serious challenge for President Vladimir Putin, whose social compact with Russians has been based on years of economic stability and relative prosperity.
“This is a major problem: the government obviously is not keeping up with the negative consequences of political decisions,” said Nikolai Petrov, a professor at the Moscow-based Higher School of Economics.
“It is important not to allow the panic to spread among people.”
While many Russians say the impact of the ruble collapse has yet to sink in, others say they are in a state of shock.
“The economic situation of the past few months has been worrisome and stressful. But what happened yesterday is a catastrophe,” Yulia Kirillova, 43, told AFP in Saint Petersburg on Tuesday.
“I did not sleep last night, thinking about what to do. My business is on its deathbed. Yesterday’s drop has shown that the situation is deteriorating, that it’s unclear what to expect and there’s no bottom.”
The Russian currency hit a low of 64.4 rubles on Monday night, sliding 9.5 per cent in a single day, its largest one-day fall since the 1998 crisis.
The slide came as the bank warned that low oil prices could trigger a contraction of nearly five percent next year.
Half of Russia’s revenues come from oil and gas, and the drop in the price of crude oil by half in the past six months has had a major impact on the country’s economy.
Economists are increasingly concerned over Russia’s economic outlook and the authorities’ apparent reluctance to change tack over the Ukraine crisis as the economy heads into recession. Putin has so far dismissed economic trouble as temporary.
Russian Central Bank Governor Elvira Nabiullina sought to put on a brave face, suggesting that the Russian currency would bounce back.