After a massive overnight rate hike by Russia's Central Bank, the ruble staged a two-hour rally Tuesday morning before rolling back to new historic lows.
The surprise Central Bank decision to raise the rate to 17% from 10.5% came in the early hours on Tuesday in a desperate attempt to prop up the troubled currency. It's the biggest interest rate hike since 1998, the year when Russia defaulted on its sovereign bonds.
The move was meant to make it expensive for currency traders to buy rubles and sell them on the market.
The ruble in the morning regained almost all of its losses from Monday's 10% decline, the biggest fall since the 1998 economic meltdown. But it rolled back and was down 3% at 66 to the U.S. dollar by noon in Moscow.
Central Bank chairwoman Elvira Nabiullina said in televised comments on Tuesday that the decision should stem inflation and encourage Russians to open ruble-denominated deposits.
Nabiullina conceded that the ruble's value will not be immediately influenced by the rate hike and said it will take the ruble "some time" before it finds a fair value.
The ruble has lost half of its value this year and the decline intensified in the past months as the economy came under pressure from Western sanctions and plunging oil prices
Demand for durable goods, an overwhelming majority of which is imported, shot up in the past months as major retailers have announced upcoming price hikes. Major automotive dealers, for one, are reporting sales up 15% to 30% in November, according to RIA Novosti news agency.
Russian stocks were moderately declining Tuesday morning with the MICEX benchmark 1.5% lower, reflecting the rate hike's pressure on businesses.
A decline in the price of oil has weighed heavily on the Russian economy as Russia depends on oil revenue and lacks the diversification to withstand severe economic downturns. The average price of a barrel of oil has dropped below $56 U.S. from a summer high of $107 U.S. The Putin government recently downgraded its forecast for next year, predicting that the economy will sink into recession.
