Rouble down despite rate increase
The Russian rouble faced intense selling pressure on Tuesday, falling at one stage by a whopping 20% to historic lows despite a massive pre-dawn interest rate hike from the country's Central Bank.
The currency, which has been under pressure for weeks because of sliding oil prices and sanctions imposed on Russia in the wake of the crisis in Ukraine, has extended Monday's collapse - when it declined by 10%.
It traded at 72 per dollar late on Tuesday afternoon. That marked a modest improvement on where it was trading earlier - it hit 78.5 to the dollar - but still means that the currency is more than 60% down from where it was in January.
Aware that imported goods were rising in the wake of the rouble's slide, there have been growing indications that Russians have recently been stocking up on big-ticket items, such as fridges and cars.
Tuesday's rouble slide came despite the surprise decision from Russia's Central Bank to increase its benchmark interest rate to 17% from 10.5%.
That represented a desperate attempt by the bank to prop up the country's troubled currency.
The country's television stations urged people not to panic.
The bank's move aims to make it more attractive for currency traders to hold on to their roubles - doing so gives them a major return, certainly in comparison to many other currencies, such as the dollar, where the interest rate returns are near zero per cent.
Other options available to the Russian authorities to stem the selling tide could be imposing capital controls or actual intervention in the markets - buying roubles, for example. The Central Bank has intervened directly in the past few months.
The situation is critical," deputy Central Bank chairman Sergei Shvetsov was quoted by Russian news agencies as saying. "We could not have imagined what is happening in our worst dreams."
Central Bank chairwoman Elvira Nabiullina said the rate hike should stem inflation - higher borrowing costs effectively choke economic activity, dampening down price pressures.
However, she conceded that the rouble's value will not be immediately influenced by the rate hike and added that it will take the rouble "some time" before it finds a fair value.
Timothy Ash at London-based Standard Bank described the rouble's fall as "the most incredible currency collapse I think I have ever seen in the 17 years in the market, and 26 years covering Russia".
"There is now a huge credibility gap for Russian policy makers in the eyes of the market," he said, adding the decline is all the more astonishing given Russia's solid foreign currency reserves and the fact that it runs a budget surplus.
Oksana Dmitriyeva, deputy chief of the Fair Russia faction at the Russian Duma, blamed the collapse of the rouble on the Central Bank's "chaotic and unprofessional" policies. She said "the government has no strategy" and whether the rouble withstands the decline "depends on official policies".