MOSCOW: Russia made another big attempt on Tuesday to save the ruble and defuse the currency crisis threatening its fragile economy.
In a surprise announcement just before 1 a.m. in Moscow, the Russian central bank said it would raise its key interest rate to 17 percent from 10.5 percent, effective today. The move was the largest single increase since 1998, when Russian rates soared past 100 percent and the government defaulted on debt.
The news prompted an immediate gain in the ruble, with one-month ruble forwards up 1.6 percent in Asian trading.
Yet the announcement, as well as its timing, underscored the financial straits in which Russia now finds itself. If sustained, the new higher rates would squeeze an economy that is already being hurt by sanctions led by the U.S. and European Union, and by a collapse in oil prices. Some analysts said they doubted the economy could withstand such high rates for long.
So far this year, Russia has spent $80 billion of its foreign-exchange reserves in an unsuccessful attempt to prop up the ruble, which tumbled past 64 against the dollar for the first time yesterday. The currency’s collapse has evoked the turmoil of the 1998 Russian crisis, an event that reverberated through financial markets around the world.
The ruble lost 9.7 percent to 64.4455 per dollar yesterday, extending its plunge this year to 49 percent. Brent, the grade of oil traders look at for pricing Russia’s main export blend, slipped 79 cents, or 1.3 percent, to end the session at $61.06 a barrel on the London-based ICE Futures Europe exchange.
Russia derives about 50 percent of its budget revenue from oil and natural gas taxes. As much as a quarter of gross domestic product is linked to the energy industry, Moody’s Investors Service estimated in a Dec. 9 report.
The economy may shrink 4.5 percent to 4.7 percent next year, the most since 2009, if oil averages $60 a barrel under a “stress scenario,” the central bank said yesterday. Net capital outflow may reach $134 billion this year, more than double last year’s total.