Rouble trims gains after opening sharply firmer

The Russian rouble trimmed its gains on Tuesday after opening 9 per cent stronger against the dollar following the central bank’s overnight decision to raise rates by 650 basis points, but the currency was still 46 per cent down on the year.

At 0717 GMT, the rouble was up 3.7 per cent against the dollar at 62.00 after the central bank raised its rate to 17 per cent following the rouble’s sharpest decline in 15 years on Monday.

The rouble was 1.9 per cent stronger versus the euro at 77.4.

Analysts said Tuesday may be judgment day for the rouble after the currency plunged by around 10 per cent on Monday, its worst fall since the Russian financial crisis in 1998.

It has fallen more than 40 per cent against the dollar since the beginning of 2014, making it the world’s worst-performing emerging market currency this year and putting pressure on Russian President Vladimir Putin whose popularity has been largely based on providing financial stability.

The market will watch to see whether the move by the central bank is enough to stem its fall.

“We are not expecting a sharp recovery — a recovery towards 50 (roubles per dollar) will definitely not happen," said Dmitry Stadnik, a trader at Rosbank in Moscow.

The rouble closed at 64.45 versus the dollar and 9 per cent down against the euro at 78.87 on Monday.

“We need a set of measures - a single rate hike as such may not be enough ... comments on further steps from the leadership of the central bank are crucial,’’ said Igor Akinshin, a trader at Alfa Bank.

“If today’s measures fail to stem the rouble rout, there is a high probability that policy will veer in a more unorthodox direction,’’ said analysts at Eurasia Group in a note, referring to the possible introduction of capital controls.

Oil and Western sanctions imposed on Russia for its role in the Ukraine crisis have been the main force behind the rouble’s demise, but on Monday, analysts said, the currency was caught up in sheer panic.

“This was obvious proof that what now rules the Russian currency is not oil, or even waiting for it to move, but panic fuelled by a large number of rumours about the return of our country to the “98-year’’ regime,’’ said Alena Afanasyeva, a senior analyst at Forex Club in Moscow.

In 1998, the rouble collapsed within a matter of days, forcing Russia to default.

“Despite the fact that Russia’s position is undoubtedly more stable than in the 90’s, the fact that the pair (dollar versus rouble) set an intraday record of growth since 1999 scares even the most level-headed.’’

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