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By Nikolaus von Twickel, dpa (TNS)

MOSCOW — The Russian ruble plunged to record lows Tuesday, defying a massive 6.5-point interest rate hike by the central bank.

The euro soared to 100 rubles in afternoon trading while the dollar rose to 80 against the ruble, meaning that the Russian currency lost more than 20 percent of its value in a single day.

The ruble recovered later to 85.5 to the euro and 68.6 to the dollar, but Russian media reports suggested that banks, especially in regions outside Moscow, limited or stopped the sale of foreign currency.

The collapse, dubbed Black Tuesday by some media, is a slap in the face to the Central Bank of Russia, which tried to shore up the currency with an interest rate hike to 17 percent during the night.

The bank’s first deputy chairman, Sergei Shvetsov, admitted that the situation was critical. “One year ago, we would not have believed in our worst dreams what is happening now,” Shvetsov was quoted as saying by the Interfax news agency.

The official added that the bank will use various measures to stabilize the situation.

Finance Minister Alexei Ulyukayev said after an urgent Cabinet meeting that the central bank should have acted earlier, but stressed that the government has no plans to introduce capital controls.

“The current exchange rate does not reflect the macroeconomic fundamentals and it is clear that it has uncoupled from oil prices,” Ulyukayev said, according to an official transcript.

Central bank Chairwoman Elvira Nabiullina said earlier the ruble was undervalued and time was needed to return the currency to its equilibrium value.

The bank had only raised its key interest rate by one point to 10.5 percent Thursday, but that did not stop the ruble from tumbling further.

Tuesday’s crash is the second in a row. On Monday, the Russian currency already lost more than 10 percent of its value against the dollar.

The ruble traditionally closely follows oil prices. The price for a barrel of North Sea Brent on Tuesday dropped below $60, down from $62.60 Monday.

The Moscow stock exchange followed suit with the leading RTS index crashing more than 12 percent.

The bank is believed to have spent tens of billions of dollars to defend the ruble this year. It continued interventions on a smaller scale even after freeing the course, spending $8.3 billion in the first two weeks of December, according to data published on its website.

The ruble has lost almost half its value since the start of 2014, first because of international tensions over Ukraine but later mainly because of falling oil prices.

The Russian economy strongly depends on oil and gas, which make up about 60 percent of its exports.

The U.S. said the free fall of the ruble and a sharp increase in interest rates illustrate the impact of international sanctions on Putin’s government.

“They are between a rock and a hard place in economic policy,” said Jason Furman, chairman of the White House’s Council of Economic Advisers. “The combination of our sanctions, the uncertainty they’ve created for themselves with their international actions and the falling price of oil has put their economy on the brink of crisis.”

He calls it “a serious economic situation that is largely of their own making and largely reflects the consequences of not following a set of international rules.”

President Barack Obama meanwhile was preparing to sign into law a measure that would authorize fresh sanctions against Moscow.

The measure, approved by Congress over the weekend, would authorize lethal aid to Ukraine’s military and tougher sanctions against Russian energy companies, but would give the president leeway in whether or not to implement the sanctions.

Spokesman Josh Earnest says Obama will sign the bill into law despite concerns it does not reflect ongoing consultations with allies about sanctions. However, he praised the bill for providing Obama with “flexibility” in putting new sanctions in place.

The currency’s collapse evoked memories of 1998 when Russia defaulted on its debt and devalued the ruble.

Analysts wondered whether the bank’s decision was enough to stop the ruble’s free fall. Alexei Kudrin, Russia’s former finance minister and a leading liberal, said the interest rate hike was not enough.

“This move needs to be followed by government decisions to raise investor confidence in the Russian economy,” he wrote on Twitter.

He said the ruble’s fall was not just a consequence of low oil prices and Western sanctions but also “a reaction to the government’s economic policies.”

The Kremlin refused to comment on the interest rate hike. President Vladimir Putin’s spokesman Dmitry Peskov said in radio interviews that the central bank is independent.

 (AFP Photo/Alexander Nemenov)

Reprinted with permission from Alternet

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