The ruble is in trouble. In a move to stop the currency’s descent, the Central Bank of Russia implemented a massive interest rate hike, from 10.5 percent to 17.0 percent in one day.
“This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks,” the bank said in the statement.
But it failed. After an initial climb, the ruble plummeted by a quarter against the U.S. dollar. In the past year the ruble has depreciated by roughly 50 percent against the dollar. After Tuesday’s rate hike, it fell at one point below $0.0125.
The drop is attributed to ongoing Western sanctions over Russia’s actions in Ukraine and the falling price of oil, Russia’s main export. This has put the Russian economy in its worst shape since 1998.
Saudi Arabia’s move last month to convince OPEC to maintain high production levels did Russia no favors. It’s estimated the price of oil needs to be about $100 per barrel for Moscow to pay its bills. The current price is hovering around $60 per barrel. The central bank said Tuesday the economy would contract by up to 4.7 percent in 2015 if the price remained at $60 for 12 months.
“Without any doubt, the situation is really very difficult, and it requires absolutely coordinated actions of the government and the central bank. And we are ready for such coordination,” said the bank’s governor, Elvira Nabiullina.
As the Russian stock market fell on Tuesday, officials there continued to look for a way to prevent a bigger crisis.
What could Russia have done to head off the drop in the ruble?
How long can the Russian public ride this out?
Have sanctions made the effects of cheaper oil more painful?
We consulted a panel of experts for the Inside Story.