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Dec 17, 2014 3:12 AM

Russian ruble is mixed after Tuesday's collapse

The Associated Press

MOSCOW (AP) Russia's embattled ruble extended a week of catastrophic losses by dropping 4 percent at the opening of trading in Moscow.

The world's worst-performing currency along with the Ukrainian hryvnia, the ruble has lost more than 50 percent of its value this year. It traded at 70.7 per dollar Wednesday morning, or 4 percent lower than at the closing on Tuesday.

The ruble lost over 15 percent of its value this week despite Tuesday's massive interest rate hike by the Russian central bank.

"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 fallen sharply in recent weeks and is down more than 50 percent since January, due to sinking oil prices as well as the impact of Western sanctions imposed over Russia's involvement in Ukraine's crisis.

The ruble's fall was not reversed by the Central Bank's dramatic middle-of-the-night decision on Tuesday to raise the rate to 17 percent from 10.5 percent.

The move is 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 where interest rate returns are near zero percent.

Other options available to the Russian authorities to stem the selling tide could be imposing capital controls or actual intervention in the markets buying rubles, for example.

Russia's Economic Development Minister Alexei Ulyukayev on Tuesday denied that the government was considering imposing capital controls but said that the rate hike came too late.

The Russian economy is set to shrink next week by 0.8 percent if oil prices stay above $80 per barrel. With the oil prices the way they are, below $60, the Russian economy could contract by up to 5 percent.

The ruble is likely to come under more pressure this week as President Barack 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.


Frank Jordans contributed to this report from Berlin.


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