Russia appeared headed Tuesday into a full-fledged currency crisis after the central bank imposed a massive, middle-of-the-night interest rate hike but failed to halt the plummet of the ruble.
The tactics have revived memories of Russia’s 1998 financial meltdown when the nation defaulted on debts and a generation’s savings was wiped out because of hyperinflation.
Russia has more crisis-fighting resources today, but the central bank decision also carried perilous risks for the broader economy.
So far this year, the ruble has lost more than half its value against the U.S. dollar, a decline closely linked to the falling price of oil — Russia’s main export — and Western sanctions imposed because of Russia’s actions in the conflict in Ukraine.
By midday Tuesday, the ruble slid more than 8 percent on top of a Monday swoon of more than 10 percent. The continued decline was a sign that investors were rejecting the central bank’s intervention.
The move, announced on the central bank Web site at 1 a.m., hiked Russia’s main deposit rate to 17 percent from 10.5 percent, an unusual leap that some analysts described as “shock and awe.” Other emerging markets have occasionally imposed similar rate hikes, also during currency crises.
Russian policymakers have quickly grown nervous about the challenges facing their economy. Earlier this month, President Vladimir Putin vowed “harsh” measures against “speculators” he blamed for pushing down the value of the ruble.
On Tuesday, Russian deputy prime minister, Olga Golodets, said poverty would “inevitably rise” because of inflation. Higher interest rates also makes it more expensive for consumers and businesses to borrow money, crimping spending and investment.