Russian Ruble Hits New Low Despite Rate Rise

Central Bank Raised Rates to 17% Overnight.

The battered ruble plunged to a record low against the dollar again Tuesday, as investors grew convinced that the Russian central bank’s surprise move overnight to jack up interest rates to 17% wouldn’t be enough to alleviate the pressure on the currency from falling oil prices and western sanctions.

By early afternoon in Moscow, the ruble dropped sharply, reaching 80 to the dollar, a record low and a 35% decline from opening levels when it rallied briefly. At 7:45 p.m. local time, the dollar was trading around 68 rubles.

“In a situation like this, an emerging market central bank has to ‘break the back’ of the market, by selling dollars on top of it,” said Luis Costa, emerging market analyst at Citigroup , in an internal note. “The central bank again shied away from aggressively selling dollars in a crucial moment to reaffirm its monetary and FX policies. This is essentially why the hikes didn’t work.”

Traders said there was no indication yet that the central bank was intervening with sales of foreign currency, even as the dollar tested the record level of 80 rubles briefly. A further fall in crude oil prices on Tuesday also weighed on the ruble and other Russian financial markets.

In an interview with state television aired midday, Central Bank Chairwoman Elvira Nabiullina said the market would need time to stabilize after the rate increase and dismissed proposals made by some in parliament that the government should impose capital controls.

Later, Deputy Chairman Sergei Shvetsov called the situation “critical,” the Interfax news agency reported. “At lot of (market) participants are in serious condition because of these events.”

“The choice the central bank made (to raise rates) was between very bad and very, very bad,” he said, noting that the bank could yet take more measures to stabilize the market.

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