Russia splashes billions to prop up battered rouble - but fails to appease market nerves

The rouble hit record lows this week triggered by a decline in oil prices

Russia could be slapped with lawsuits for its alleged involvement in the MH17 crash (Reuters)

Russia is splashing billions to prop up the rouble after the currency went into freefall yesterday, heaping pressure on President Vladimir Putin.

The country’s finance ministry claimed the ailing currency was “undervalued” as it spent some $7 billion from “leftover” reserves in a bid to put a floor under the collapse, triggered by a near-50 per cent slide in oil prices since June.

The rouble hit record lows this week, with more than 80 roubles needed to buy a single dollar at one stage, but the intervention stemmed the bleeding with the currency strengthening 5 per cent to 64 to the dollar at one point before losing ground again.

The rouble has, however, still halved in value since the beginning of the year and the central bank’s shock overnight hike in interest rates to 17 per cent this week will almost certainly tip Russia into recession next year. This, along with Western sanctions over its belligerence in the Ukraine, will heap pressure on President Vladimir Putin.

Dealing rooms in the City remained in nervous mood despite the intervention, sending London’s FTSE 100 index nearly 1 per cent lower. The falls were echoed across major European indices with France’s CAC 40, Germany’s Dax and Spain’s IBEX showing similar falls.

Experts also questioned the effectiveness of today’s intervention.

Simon Smith, chief economist at FxPro, stressed: “This is not central bank intervention. This is the finance ministry basically looking down the back of the sofa to see what foreign currency reserves are lying around to spend. It’s a half-hearted gesture.”

Simon Derrick, an analyst at Bank of New York Mellon, said $7 billion was “basically nothing” in currency terms when the central bank has a $400 billion foreign exchange war chest to defend the rouble.

“For me this is less about what Russia is doing, and more about less hawkish expectations from the US Federal Reserve on interest rates.” The Fed is making its monetary policy decision today.

The Bank of England’s deputy Governor Sir Jon Cunliffe played down the impact of the Russian crisis on the UK economy today, stressing that the oil price, below $60 today, was good for the economy.

But he added: “What one needs to watch really carefully in a situation like this is whether that change in investor sentiment towards Russia, the volatility that’s going on around Russia, starts to transmit to other markets.”