World Economy

Russia Fails to Stop Ruble Crash

Russia Fails  to Stop Ruble CrashRussia Fails  to Stop Ruble Crash

The ruble sank to a record, deepening Russia’s currency crisis, as people scrambled to convert their money into dollars after a surprise interest-rate increase failed to shore up investor confidence.

The ruble plunged as much as 19 percent to 80.10, before trading at 72.99 by 5:12 p.m. in Moscow, amid speculation Russia will resort to capital controls after a 650 basis-point increase in borrowing costs to an 11-year high proved ineffective, Bloomberg reported.

The Russian government called a meeting to discuss the financial crisis engulfing the country following the currency’s biggest drop since 1998, the year Russia defaulted on local debt.

The Russian government will hold a meeting on financial issues late Tuesday, Prime Minister Dmitry Medvedev said. Officials may announce currency restrictions, money managers from Schroder Investment Management Ltd. to Skandinaviska Enskilda Banken AB said. Such limits might endanger Russia’s investment-grade rating, Rogge Global Partners Plc said.

Undermining Confidence

Ten-year government-bond yields jumped 317 basis points to a record 16.4 percent Tuesday. The cost of insuring against losses on government debt climbed to 601 basis points, the highest since March 2009, while the dollar-denominated RTS Index of equities plummeted to 5 1/2-year low.

The turmoil in the financial markets is undermining the confidence of individuals as banks point to a surge in demand for converting rubles into dollars. Khanty-Mansiysk Otkritie Bank, the retail arm of Russia’s second-largest private lender, said foreign-exchange demand was three to four times above the daily average Tuesday.

The ruble has plummeted 55 percent this year even after 11.5 percentage points of increases took the key interest rate to 17 percent and the central bank spent more than $80 billion on interventions.

The costs of the depreciation in ruble, which has lost 54 percent of its value this year, are steep as inflation hovers at a more than three-year high and currency interventions drain the nation’s reserves. Russia’s cash pile has fallen to a five-year low of $416 billion as the central bank spent more than $80 billion this year trying to slow the ruble’s biggest annual retreat since 1998.

The boost in Russian borrowing costs, which happened in a surprise announcement just before 1 a.m. in Moscow, was the biggest since rates soared past 100 percent in 1998.

“If such a rate hike, such a shot of medicine doesn’t help the ruble, then interventions won’t help either,” Artem Roschin, a foreign-exchange dealer at Aljba Alliance in Moscow, said by phone. “There’s no point in spending reserves.”