Rouble crashes to 100 to euro, 80 to dollar

The Russian rouble crashed to new record lows on Tuesday, losing some 20 per cent in value by the afternoon despite drastic overnight measures by the central bank to hike the key rate.

The rouble hit 80 to the dollar and 100 to the euro on the Moscow Exchange. Overall the Russian currency has lost nearly 60 per cent of its value since the start of the year.

The RTS index of the Moscow Exchange fell by 17 per cent, to its lowest point since 2009. "We are clearly seeing a speculative attack on the rouble," an analyst with VTB24 bank Alexei Mikheyev told AFP.
After a massive overnight rate hike by Russia's Central Bank, the rouble staged a two-hour rally on Tuesday morning before rolling back to new historic lows.

The surprise Central Bank decision to raise the rate to 17 per cent from 10.5 percent came in the early hours on Tuesday in a desperate attempt to prop up the troubled currency. It's the biggest interest rate hike since 1998, the year when Russia defaulted on its sovereign bonds.

The move was meant to make it expensive for currency traders to buy roubles and sell them on the market.

The rouble in the morning regained almost all of its losses from Monday's 10 per cent decline, the biggest fall since the 1998 economic meltdown. But it rolled back and was down 3 percent at 66 to the dollar by noon in Moscow (0900GMT).

Central Bank chairwoman Elvira Nabiullina said in televised comments on Tuesday that the decision should stem inflation and encourage Russians to open rouble-denominated deposits.

Nabiullina conceded that the rouble's value will not be immediately influenced by the rate hike and said it will take the rouble "some time" before it finds a fair value.

The rouble has lost half of its value this year and the decline intensified in the past months as the economy came under pressure from Western sanctions and plunging oil prices.

"With these steps, the Central Bank is looking to bring stability back to the (foreign exchange) market, which has been behaving irrationally over the last few weeks," Moscow-based investment bank Sberbank-CIB said in a morning note. "This state of affairs required extraordinary measures from the Central Bank — and such measures have now been taken."

The bank, however, added that this step alone is unlikely to reverse the collapse of the rouble, saying that "the longer term stabilisation will depend on the consistency of the regulator's (the bank's) actions and its degree of commitment."

Russian stocks were moderately declining on Tuesday morning with the Micex benchmark 1.5 per cent lower, reflecting the rate hike's pressure on businesses.

A decline in the price of oil has weighed heavily on the Russian economy as Russia depends on oil revenue. The average price of a barrel of oil has dropped below $56 from a summer high of $107. The government recently downgraded its forecast for next year, predicting that the economy will sink into recession.

The central bank has gradually raised the rate from 5.5 per cent early this year. Last Thursday, it tried unsuccessfully to stem the rouble's slide by boosting its key rate by 1 percentage point to 10.5 per cent.

The rate increase, although it can help stabilize the rouble, could spell serious economic troubles ahead, making it more expensive for companies to borrow funds.

Alexei Kudrin, Russia's finance minister in 2000-2011, said on Twitter following the rate hike that "the fall of the ruble and the stock market is not just a reaction to low oil prices and the sanctions but also (a show of) distrust to economic policies of the government."

Kudrin added that the rate hike "should be followed by government measures to raise investor confidence in the Russian economy." He did not say what steps he advocated.
 

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