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Ruble keeps on sliding

December 16, 2014

Russia's currency has continued its plunge against the dollar and euro, despite a massive interest rate hike by the country's central bank. After a brief rebound, the ruble has fallen to a new all-time low.

Russland Währung Euro und Rubel
Image: RIA Novosti

The euro soared to 100 rubles in afternoon trading Tuesday while the dollar rose to 80 against the ruble, meaning that the Russian currency lost more than 20 per cent of its value in a single day.

The Russian currency recovered later to 85.5 to the euro and 68.6 to the dollar, but Russian media reports suggested that banks, especially in regions outside Moscow, limited or stopped the sale of foreign currency.

Earlier on Tuesday, the Russian central bank had attempted to shore up the currency by hiking interest rates from 10.5 percent to 17 percent. The emergency rate increase, however, stopped the collapse only briefly.

Russia's currency woes sent the Moscow stock exchange on a roller coaster ride, with the RTS index falling by 5 percent after trading opened and later rising to 4 percent plus, only to fall again to 1.5 percent underneath Monday's closure.

Investor confidence slumps

The Bank of Russia announced the massive interest hike on its website around midnight, saying that the decision aimed to "limit devaluation and inflation risks," which it said had risen significantly recently.

Analysts had mixed reactions. Former finance minister Alexei Kudrin approved the rate hike, saying on Twitter that "in current conditions it was compulsory but correct."

"This move needs to be followed by government decisions to raise investor confidence in the Russian economy," he added.

But Russia's ombudsman for the rights of entrepreneurs, Boris Titov, criticized the decision. He said it didn't make sense to save the ruble at the expense of the entire economy.

"During [Putin's] address to the nation we heard about the need to develop business, new technologies, investment and import substitution. But the central bank's decision is categorically against all of these," he said on Russian radio.

The ruble has lost almost half of its value since the start of 2014, first because of international tensions over Ukraine, but later mainly because of falling oil prices. The Russian economy strongly depends on oil and gas, which make up some 60 percent of its exports.

The Russian central bank also warned that low oil prices could trigger a contraction next year of nearly 5 percent in the Russian economy. The bank's dramatic step evoked memories of 1998, when Russia defaulted on its debt and devalued the ruble.

uhe,hg/el (dpa, Reuters, AFP)