Russia's ruble falls to new all-time low despite hike in interest rates

MOSCOW – The ruble continued to slide Thursday even after Russia’s Central Bank sought to ease the selling pressure on the currency following the drop in oil prices by raising interest rates again.

The Central Bank raised its key interest rate by a percentage point to 10.5 per cent, citing an increasing rise in consumer prices and “significant inflation risks.” The bank said inflation is expected to hit 10 per cent for 2014 and rise further in the first quarter of 2015.

Despite the increase, the ruble remained under pressure. The currency broke above 55 rubles to the dollar for the first time ever as it struck its new all-time low of 55.80, a one-day decline of 1.5 per cent. And against the euro, it was heading toward the 70 ruble threshold for the first time, hitting 69.14 rubles to the euro. Russian stocks were down sharply and the RTS stock index closed 3.6 per cent lower.

The ruble has lost about 42 per cent of its value since January, battered by Western sanctions imposed over the conflict in eastern Ukraine and the drop in the price of oil, the backbone of the Russian economy.

The Central Bank said it would continue to raise its key rate “in the case of further aggravation of inflation risks.”

Fitch Ratings said the latest rate rise highlights the challenges posed from rising inflation and the falling ruble.

“These are set to increase in 2015 as the economy deteriorates, downside risks accumulate, and inflation reaches double digits,” it said. “The ruble fell to a record low against the dollar immediately after the decision, and the rise will constrain domestic demand and hasten the move into recession.”

According to Russia’s Central Bank, the Russian economy is unlikely to see any growth in 2015 or 2016. The Russian government recently revised its economic forecast for next year, predicting a drop of 0.8 per cent instead of 1.2 per cent growth.