The ruble plummeted into a freefall on Tuesday, losing as much as 19 percent as panic swept across Russian financial markets after a surprise interest-rate increase failed to stem the run on the currency.
The ruble plunged to as weak as 80.10 per dollar, a record low, before trading at 72.90 by 5:18 p.m. in Moscow, as Russians scrambled to convert their money into dollars amid concern the government will implement currency controls to slow the outflows. Bonds fell as the RTS stock index tumbled the most in almost six years. Government officials will gather to discuss the financial crisis engulfing the country.
“I am speechless,” Jean-David Haddad, an emerging-market strategist at OTCex Group in Paris, said in a message. “What a failure for the central bank. Russia would need to announce capital controls today. That is the last solution.”
The scope of the ruble’s retreat indicates policy makers are losing control of the situation as the six-month, 49 percent tumble in oil saps the country of hard currency needed to sustain an economy that’s sputtering under the weight of international sanctions. The currency’s plunge, the biggest one-day drop in 16 years, was exacerbated by concern that policy makers were pumping more rubles into the economy to prop up state oil giant OAO Rosneft, a move that effectively gives investors additional money to buy dollars.
The Russian government will hold a meeting on financial issues today, 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.
Ten-year government-bond yields jumped 317 basis points to a record 16.4 percent today. 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 today.
Russia could impose capital controls by making it more difficult for depositors to swap their cash into hard currency or by requiring exporters to convert some of their earnings into rubles, Per Hammarlund, chief emerging-markets strategist at SEB, said by e-mail from Stockholm.
“Our traders are informing me that we see no bids to buy rubles,” Hammarlund said. “I thought 17 percent would give them at least a month of breathing space. We next have to look at the experience in 1998-1999. We are also one big step closer to capital controls.”