Russia's currency continues its dramatic decline
MOSCOW -- Russia's embattled ruble appeared to be regaining some of its catastrophic losses in early trading Wednesday, boosted by the finance ministry's announcement that it is about to intervene to support the currency.
The ruble fell 4 percent at the opening of trading in Moscow, but reversed its fall an hour into the trading day and was up 5 percent, at 64 rubles, at 11.15 a.m. Moscow time.
The moderate rise in the ruble was further spurred by the finance ministry's announcement that it believes the ruble to be "undervalued" and is about to begin selling currency on the market.
Deputy Finance Minister Alexei Moiseyev was quoted by the Interfax news agency as saying that it is going to sell foreign currency from its treasury accounts "as much as necessary and as long as necessary."
The world's worst-performing currency along with the Ukrainian hryvnia, the ruble has lost more than half its value this year.
Six months ago, 34 rubles would buy a dollar. On Tuesday, it took almost 70 rubles, notes CBS News correspondent Charlie D'Agata. So Russians holding rubles have lost half their wealth.
"Russia is in a vise," D'Agata says. "The collapse of oil prices wrecked its main source of income and U.S.-led sanctions after the invasion of Ukraine mean Russia can't borrow from western banks."
With the ruble hitting record lows, many Russians rushed to unload their shrinking bank accounts on high ticket items like refrigerators and dishwashers.
"We bought a washing machine for $440," said shopper Alexei Malakhov, an IT specialist. "Now it's already $560."
"This is a very dangerous situation, we are just a few away from a full-blown run on the banks," Russia's leading business daily Vedomosti said in an editorial on Wednesday. "If one does not calm down the currency market right now, the banking system will need robust emergency care."
The ruble has lost over 15 percent of its value this week despite Tuesday's massive interest rate hike by Russia's central bank.
In a dramatic middle-of-the-night decision, the bank hiked the rate to 17 percent from 10.5 percent.
It backfired badly, according to Investment analyst Chris Weafer. "It's had the opposite effect because people perceive it to be a panicky move by the Central Bank," he said.
The move was intended to make it more attractive for currency traders to hold onto their rubles. Doing so gives them a major return in comparison to many other currencies from which interest rate returns are near zero percent.
Another option available to Russian authorities to stem the selling tide could be imposing capital controls. Russia's Economic Development Minister Alexei Ulyukayev on Tuesday denied that the government was considering imposing the controls, but said the rate hike came too late.
The ruble is likely to come under more pressure this week: President Obama is expected to sign legislation authorizing new economic sanctions on Russia.
Russian officials, however, sought to project a message of confidence on state television, dwelling on the advantages of ruble devaluation, such as a boost to domestic manufacturing.
The German government's coordinator for relations with Russia, Gernot Erler, said the economic crisis in Russia was largely the result of the drop in oil prices, not the sanctions imposed by the West.
"It's an illusion to think that if the sanctions were to fall away tomorrow, the Russian economy would suddenly be all right again," Erler told rbb-Inforadio on Wednesday.
More details on: cbsnews.com