Rouble plunges to new lows
The rouble plunged further today as it hit new lows despite an emergency hike in Russian interest rates to 17%.
Traders ditched the currency as the central bank move failed to stem fears over the plunging price of oil - now at a five and a half year low - and Western sanctions.
The surprise rate hike from 10.5% in the early hours of the morning initially helped the rouble to recover losses in the previous session but it was later on the slide again, weakening to near 80 rouble against the US dollar.
It came as the price of a barrel of Brent crude dipped close to 58 US dollars, the lowest level since May 2009 and about half its price this summer - with the fall heavily impacting Russia because of its huge dependence on oil revenues.
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The prospect of tightening US sanctions over the conflict with Ukraine also weighed on the currency, coming on the back of the Russian government's recent downgrade of its forecast for next year, predicting the economy will fall into recession.
Market analyst Craig Erlam said: "The Russian rouble is in freefall despite efforts made overnight from the Central Bank of Russia to at least slow the decline.
"The CBR threw everything including the kitchen sink at the currency problem overnight following the largest one-day drop against the dollar since 1998.
"Initially, the 6.5% rate hike to 17% appeared to have brought some short-term reprieve for the rouble but unfortunately for the CBR, it was much more short term than they hoped and it wasn't long before the markets rejected the Central Bank's efforts and opted to continue on the same course."
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Central Bank chairwoman Elvira Nabiullina said the sharp interest rate hike should stem inflation but conceded that it could be "some time" before the rouble finds a fair value.
There was speculation about whether the Kremlin would need to impose capital controls to stop money flowing out of the country if the interest rate move failed to arrest the decline.
Meanwhile the hike looked likely to cause major hardship in Russia's economy with pressure on borrowers.
In London, Bank of England governor Mark Carney appeared to play down the impact of the crisis on the UK during a press conference.
He said Russia accounted for 1.3% of exports last year before sanctions started to bite while British-owned banks account for 2.6% of Russia's total bank equity.
Sterling looked to be a beneficiary of the switch out of the rouble, together with the euro, with both climbing by a cent against the US dollar.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said international investors would be reminded of the previous currency crisis of 1998 and subsequent default on its debts that had a major knock-on effect on Wall Street.
But he added: "While the currency has significantly weakened this year, default by the government looks unlikely this time around because Russia has relatively low levels of government debt compared to GDP."
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