Russia's Rate Increase Fails To Stop Currency's Steep Decline

Russia's ruble plunged to a record low against the dollar on Tuesday despite some bold measures taken by the country's central bank to halt its slide.

The Wall Street Journal reports:

"By early afternoon in Moscow, the ruble was dropping sharply, reaching 74 a dollar, a record low. It had rallied briefly in early trade — reaching less than 59 a dollar — but fell back into negative territory less than two hours after trading began Tuesday, slipping below the 64.44 level at which the Moscow Exchange had limited trading late Monday after the Russian currency lost more than 10% of its value."

This is news for two reasons: First, it means that Western sanctions and falling oil prices are continuing to squeeze Russia. Second, it means that the central bank's decision to hike interest rates to 17 percent from 10.5 percent early this morning had little effect on the world's worst-performing major currency.

Bloomberg speculates on what could be next:

"Russian central bank Governor Elvira Nabiullina may resort to capital controls as she runs out of options to revive a currency wrecked by the oil-price slump and international sanctions, money managers from Schroder Investment Management Ltd. to Skandinaviska Enskilda Banken AB said. The ruble has plummeted 58 percent this year even after an 11.5 percentage-point increase in rates and interventions exceeding $80 billion.

"'I am speechless,' Jean-David Haddad, an emerging-market strategist at OTCex Group in Paris, said in a message. 'What a failure for the central bank. Russia would need to announce capital controls today. That is the last solution.'"

By capital controls, Bloomberg means Russia may resort to limiting the buying and selling of the ruble.