Russian Rouble Slides Despite Shock Rate Rise

An attempt by Russia's central bank to halt a dramatic slide in the value of the rouble appears to have failed.

The currency strengthened - by more than 9% against the dollar at one stage - in the wake of the intervention which saw the core interest rate raised overnight from 10.5% to 17%.

But those gains were later erased as the rouble lost a further 3%.

The Bank of Russia's surprise action was a response to the rouble's value sinking by almost 50% over the course of the year - hit by Western sanctions imposed over the Ukraine conflict and plummeting oil prices.

It was also intended to settle nerves back home as fears grow that the extent of Russia's economic problems - largely unreported by state media - could spark panic among consumers as price rises become unmanageable.

By raising interest rates, the bank also hoped investors would find it more financially appealing to keep their money in Russia, whose economy relies heavily on oil revenues.

Central bank chairwoman Elvira Nabiullina said the decision should stem inflation, although she admitted it will take the rouble "some time" to find its correct value.

Russian stocks fell slightly on Tuesday morning with the MICEX benchmark 1.5% lower, reflecting the additional pressure on businesses.

Falls of more than 50% in world oil prices are tipped to plunge Russia into recession next year.

On Tuesday the value of Brent crude slipped to new five-year low, falling below $60-per-barrel for the first time since July 2009.

The Bank Of Russia had raised the rate from 5.5% earlier this year to 10.5% just last Thursday.

It said then that it expected inflation to run at 10% this year and climb higher in the first quarter of 2015.

But the rouble plunged further against the dollar on Monday, dropping from 55 roubles last week to about 65 roubles to the dollar.

Alexei Kudrin, Russia's finance minister from 2000-2011, said on Twitter "the fall of the rouble is not just a reaction to low oil prices and the sanctions but also (a show of) distrust to economic policies of the government."

A falling currency increases the cost of imports, thereby stoking inflationary pressures.

At the same time, plummeting oil prices give the government less money to combat a downturn and can force it to borrow more.

The sanctions imposed by the West over Moscow's involvement in Ukraine have added to Russia's economic woes.

In September, the US and the European Union announced a new round of sanctions which included blocking Western financial markets to key Russian companies.

Further sanctions are likely after the US Congress passed legislation on Monday that could also see Washington providing weapons and other assistance to Ukraine.

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