Russian rouble plunges despite emergency midnight rate hike

Central bank raised rates to 17% but has failed to appease market as Russian currency slides further

(AP)

A mammoth rate hike by the Russian central bank has failed to stop the decline of the rouble against the dollar as pressure on the battered currency intensifies.

The Bank of Russia stunned the market with massive rate hike from 10.5 per cent to 17 per cent overnight in an effort to prop up the currency, which has lost almost 50 per cent of its value this year.

The rouble rose briefly on Tuesday morning after its worst intraday decline on Monday reminiscent of the 1998 financial crisis as investors reacted to the emergency hike, but then fell again erasing early gains.

The Russian currency has come under intense pressure as a result of Western sanctions over the Ukraine crisis and plummeting oil prices. The country is also facing a bleak economic picture with rising inflation and a slowdown in the economy creeping closer to recession.

In a television interview, central bank governor Elvira Nabiullina said the decline in the value of the rouble is driven by external factors and insisted the currency is undervalued. Meanwhile, oil prices extended losses to just above $59 a barrel for the first time since May 2009.

Nabiullina said it would take time and coordinated action with the government to support the rouble. So far this year, the Russian central bank has spent more than $70 billion of its foreign reserves to prop up the rouble - but has failed to appease the market.

President Vladimir Putin has repeatedly said the collapse in the value of the rouble is not supported by economic fundamentals and blasted speculators for "using these instruments" to curb a stronger Russia.