A sharp overnight hike in interest rates by Russia’s central bank has failed to halt a record slide in the value of the ruble, which after a brief rally has fallen more than 11 percent against the dollar Tuesday in the face of intense selling by speculators.
The drop to a record low of 79 rubles to the dollar in late afternoon trading came despite a surprise 650-basis point increase in the Russia’s benchmark lending rate from 10.5 percent to 17 percent.
The intervention caused the ruble to rise 10 percent at the opening of the trading day in Moscow Tuesday, but selling pressure steadily drove the currency down in the hours that followed.
A year ago, the ruble was trading at under 33 to the dollar.
Russia still enjoys deep financial reserves to defend the currency, but the ruble’s fall represents a clear political peril for President Vladimir Putin. A similar currency crisis in the late 1990s helped undermine political support for the government of President Boris Yeltsin, Mr. Putin’s political mentor.
The ruble’s fall comes as the Russian economy is tipping into recession, battered by the sharp fall in global energy prices and the pressure from U.S. and European sanctions over Russian incursions into neighboring Ukraine. President Obama is considering whether to sign a new bill that would impose even more restrictions on Russian defense and energy firms.
The ruble has now lost more than half of its value relative to the dollar and the euro since the start of the year, making imported consumer goods more expensive at a time when revenues from the country’s chief export — energy — are plummeting.
The interest rate hike threatens to deepen the country’s recession, feeding inflationary pressures and making it more difficult to finance home mortgages and business loans.
Mr. Putin hinted earlier this month he would consider more drastic measures, including currency controls, to fight back at speculators who he said were targeting the Russian government.
Secretary of State John Kerry, speaking to reporters in London Tuesday, said he saw signs that Western sanctions against Moscow were beginning to have an effect, citing lower tensions in eastern Ukraine and the “withdrawal of certain people” in recent days.
The sanctions, Russia’s faltering economy and the ruble’s decline are increasing the pressure on Mr. Putin to change course, Mr. Kerry said.
“There are a lot of combined factors, but the sanctions were clearly intended to invite President Putin to make a different set of choices,” the U.S. secretary of state said.
“We do not want the people of Russia to be hurt here,” he said, “but, yes, collaterally of course, they are caught up in the choices that their government makes.”
• David R. Sands can be reached at dsands@washingtontimes.com.
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