The rouble’s value continued to slide on Tuesday despite the Russian central bank’s extraordinary effort to defend it, inducing further panic in the nation’s financial industry and presenting President Vladimir Putin with an acute new set of political and economic challenges.
Scenes that Russians hoped had receded into the past reappeared on the streets: Currency exchange signs blinked ever-changing digits, and Russians rushed to appliance stores to buy washing machines or televisions to unload roubles.
“We are seeing an economic crisis,” Natalia V Akindinova, a professor at the Higher School of Economics, said in an interview. “We are seeing a sharp devaluation of the rouble at a time when the central bank doesn’t have the reserves to influence the market, as it did in the past crises.”
Despite the decision by the Central Bank of Russia to raise its short-term interest rate in the middle of the night to 17% from 10.5%, the value of the currency continued to slip on Tuesday after initially showing signs of stabilizing. The interest rate move came after the rouble fell 10% on Monday.
In afternoon trading, the Russian currency resumed its fall to record lows, with the dollar rising above 79 roubles in spite of the bank’s policy shift.
Of particular concern in the financial markets were fears that the Kremlin had in effect decided to print money to address a growing debt problem. Worries that the central bank had effectively issued new roubles to prop up the national oil company Rosneft were among the factors that prompted the dramatic sell-off of roubles on Monday.
With pressure mounting, the bank appeared to have lapsed into a “policy of printing money,” Akindinova said, to aid the state oil company pinched by low oil prices and financial sanctions over the Ukraine crisis. Traders suggested that they had been spooked by concerns that the cronyism and opaque insider dealings that have long plagued business here had spread to monetary policy.
The central bank also increased allotments of dollars to the Russian banking system, to finance the purchase of roubles as part of the effort to stabilize the currency.
The interest rate increase and the inflation that comes with a sharp fall in the value of a currency are creating additional pressures on the Russian economy, which has been buffeted by plunging oil prices and the effect of Western sanctions imposed by the US and the European Union because of Russia’s involvement in Ukraine.
A continued fall in rouble could present Putin with difficult choices and could make it more difficult to sustain the political support he has enjoyed at home even as his relations with the United States and Europe have frayed. Though the fall in the price of oil, a major Russian export commodity, has been whittling away at the rouble for months, oil prices actually ticked up on Monday.