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| Rouble in freefall despite rate hike | |
| (35 minutes later) | |
| Drastic action by Moscow authorities to defend the Russian currency has failed, as the rouble went into freefall to hit a new all-time low against the dollar. | Drastic action by Moscow authorities to defend the Russian currency has failed, as the rouble went into freefall to hit a new all-time low against the dollar. |
| Although the rouble rallied in early trading, the gains quickly unwound on Tuesday morning, with the Russian currency plunging more than 10% to a new low of 73 per US dollar. | |
| The further slide in the currency piles pressure on Russia’s central bank, which made a dramatic intervention at 1am last night, raising interest rates to 17%. This was the biggest one-day increase since the 1998 financial crisis that plunged Russia into recession and shook stock markets around the world. | The further slide in the currency piles pressure on Russia’s central bank, which made a dramatic intervention at 1am last night, raising interest rates to 17%. This was the biggest one-day increase since the 1998 financial crisis that plunged Russia into recession and shook stock markets around the world. |
| Russia’s central bank said the rate rise was aimed at limiting currency depreciation and inflation risks. The rouble has halved in value in six months, sending inflation surging to 10%. | Russia’s central bank said the rate rise was aimed at limiting currency depreciation and inflation risks. The rouble has halved in value in six months, sending inflation surging to 10%. |
| Central bank governor Elvira Nabiullina said western sanctions and the falling price of oil were to blame for the sharp fall in the value of the rouble. Russian banks are barred from raising money on western money markets as a result of sanctions, while the price of oil, Russia’s main export, hit a five-year low on Tuesday. Russia relies on oil revenues to pay for a little more than half of its state spending and needs oil to be at $100 a barrel to balance the budget. | Central bank governor Elvira Nabiullina said western sanctions and the falling price of oil were to blame for the sharp fall in the value of the rouble. Russian banks are barred from raising money on western money markets as a result of sanctions, while the price of oil, Russia’s main export, hit a five-year low on Tuesday. Russia relies on oil revenues to pay for a little more than half of its state spending and needs oil to be at $100 a barrel to balance the budget. |
| The central bank said the economy would contract by up to 4.7% in 2015 if the oil price remained at $60 for 12 months. | The central bank said the economy would contract by up to 4.7% in 2015 if the oil price remained at $60 for 12 months. |
| Timothy Ash at Standard Bank said the Russian authorities had “a full-blown rouble crisis on their hands”, more akin to the ‘Made in Russia’ 1998 financial crisis, than the 2008 global crash. He blamed Russia’s central bank for not acting more decisively to stem the crisis. Last week, the bank raised rates by one percentage point to 10.5%. | Timothy Ash at Standard Bank said the Russian authorities had “a full-blown rouble crisis on their hands”, more akin to the ‘Made in Russia’ 1998 financial crisis, than the 2008 global crash. He blamed Russia’s central bank for not acting more decisively to stem the crisis. Last week, the bank raised rates by one percentage point to 10.5%. |
| Analysts think Russian policymakers could take even more drastic action to stabilise the currency, by stopping people from taking money out of the country. | Analysts think Russian policymakers could take even more drastic action to stabilise the currency, by stopping people from taking money out of the country. |
| The Russian government faced further woe, as the benchmark price of oil - its main export - fell below $60 a barrel for the first time since July 2009. | The Russian government faced further woe, as the benchmark price of oil - its main export - fell below $60 a barrel for the first time since July 2009. |
| The cost of a barrel of Brent crude fell 2.15% to $59.93 on Tuesday morning, its lowest point since July 2009. Nymex US crude fell through the $60 floor on Monday, with further downward momentum on Tuesday morning taking it down 1.8% to $54.95. | The cost of a barrel of Brent crude fell 2.15% to $59.93 on Tuesday morning, its lowest point since July 2009. Nymex US crude fell through the $60 floor on Monday, with further downward momentum on Tuesday morning taking it down 1.8% to $54.95. |
| Oil prices have almost halved since June, but the producer cartel Opec is insisting it will not cut output to reduce the glut in supply. | Oil prices have almost halved since June, but the producer cartel Opec is insisting it will not cut output to reduce the glut in supply. |
| Prices softened after data showed that China’s factory sector had shrunk for the first time in seven months in December, further dampening demand for oil. | Prices softened after data showed that China’s factory sector had shrunk for the first time in seven months in December, further dampening demand for oil. |
| On Monday, Opec officials reiterated their opposition to cutting production. Abdalla el-Badri, the Opec secretary general, said the group could manage an oil price slump without amending production. Suhail bin Mohammed al-Mazroui, oil minister of the United Arab Emirates, an Opec member, said there was no need for an emergency meeting of the cartel to help support prices. | On Monday, Opec officials reiterated their opposition to cutting production. Abdalla el-Badri, the Opec secretary general, said the group could manage an oil price slump without amending production. Suhail bin Mohammed al-Mazroui, oil minister of the United Arab Emirates, an Opec member, said there was no need for an emergency meeting of the cartel to help support prices. |