Russia lurched towards a financial crisis evoking parallels with its 1998 crash, as the rouble plunged more than 11 per cent despite a dramatic midnight interest rate rise by its central bank.
The rouble turmoil showed signs of spreading to global markets, as investors piled into haven assets and German bond yields dropped to a record low.
In a sign of the pressure policy makers are under, Sergey Shvetsov, deputy governor of the central bank, said the situation was “critical”. “I couldn’t imagine even a year ago that such a thing would happen — even in my worst nightmares,” he told an event in Moscow.
Russian shoppers rushed to buy goods before the currency lost more value, while some banks ran short of cash as customers stocked up on dollars and euros.
“Russia is in full-blown currency crisis,” said Alexander Moseley, fund manager at Schroders. “It is difficult to see the underlying source of stress ending.”
At one point yesterday the rouble tumbled to 80 against the US dollar before recovering to Rbs70. It has fallen more than 50 per cent since the start of the year, reviving memories of the 1998 crash when Russia defaulted on its domestic debt — though its public finances and reserves are in a much healthier state now.
The rouble’s slide comes in the run-up to Fed chairwoman Janet Yellen’s last monetary policy meeting of 2014. If she sends a strong signal on rate rises next year it could extend the rout in emerging markets by sucking capital back into the US.
The rouble’s dro has been driven by declining confidence in the central bank, western sanctions against Russia over its involvement in Ukraine and a falling oil price which dipped below $60 yesterday for the first time since July 2009. It presents a huge problem for President Vladimir Putin.
As the rouble continued to slide, Dmitry Medvedev, prime minister, summoned top central bank and government officials for urgent talks on the financial and economic situation.
Investors and Russian citizens are now looking to an annual press conference by Mr Putin tomorrow for signals on how he plans to deal with the crisis — and in particular for any signs that he may soften his stance on Ukraine in an attempt to ease sanctions.
The failure of Russia’s central bank on Monday night to stem the currency’s sharp declines with an emergency interest rate rise of 6.5 points to 17 per cent raised speculation that Moscow would introduce capital controls.
The rouble’s fall ricocheted through global financial markets, encouraging a flight to quality among investors. Yields on 10-year debt issued by Germany dropped to 0.56 per cent for the first time, while equivalent Japanese bond yields hit a record low of 0.36 per cent.
Moscow’s Micex stock index fell more than 8 per cent during the day before recovering, with shares in Russia’s biggest bank, Sberbank, down 17 per cent and Gazprom down 10 per cent.
Additional reporting by Jack Farchy, Elaine Moore, Alice Ross and Michael Hunter (www.chinainout.com)
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