Russian rouble dives to fresh low despite shock 17% rate rise

Russia’s rouble has fallen to a new record low despite a dramatic interest rate rise by its central bank.

It increased rates from 10.5% to 17% in an attempt to boost the currency’s value against the dollar.

The rouble has lost almost 50% against the US dollar this year as falling oil prices and Western sanctions continue to weigh on the country’s economy.

The rate rise helped the rouble to 58 to the dollar early on Tuesday but the dollar now buys as many as 73 roubles.

‘Extraordinary measures’

Last week, Russia raised rates to 10.5% from 9.5%, a move that had little impact. The rouble’s slide this week was prompted by fears the US was considering a fresh set of sanctions against the country for its support for separatists in Ukraine.

The chairwoman of the Russian Central Bank, Elvira Nabiullina, said the latest rate rise should curb inflation and encourage Russians to put more roubles into interest rate-bearing accounts.

However, she said she did not expect the rouble’s value to be immediately influenced by the rate rise: “The rouble is currently undervalued according to all fundamental parameters and the state of the economy… and the current account. But for the rouble to return to its fundamental exchange rate it would take time.”

A note from Moscow-based investment bank Sberbank said: “With these steps, the Central Bank is looking to bring stability back to the [foreign exchange] market, which has been behaving irrationally over the last few weeks. This state of affairs required extraordinary measures from the Central Bank.”

The 60 mark is considered a “psychological barrier” for Russia’s national currency, says the BBC’s Moscow correspondent, Steve Rosenberg.

Neil Shearing, chief emerging markets economist for Capital Economics, said the rate rise “could prove to be a turning point in the 2014 rouble crisis”.

“The price, however, will be a further tightening of credit conditions for households and businesses and a deeper downturn in the real economy in 2015,” he said.

Source: http://www.bbc.com/news/business-30492518

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