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 A 6.5 percentage point interest rate rise to 17 percent overnight
failed to prevent the currency hitting record lows in a "perfect
storm" of low oil prices, looming recession and Western sanctions
over the Ukraine crisis.
Putin has blamed the ruble's crash on speculators and the West,
while a presidential spokesman on Tuesday attributed the market
turbulence to "emotions and a speculative mood".
The rouble lost 11 percent against the dollar on Tuesday, its
steepest one-day fall since the Russian financial crisis in 1998. It
has fallen 20 percent since the start of the week and more than 50
percent this year.
As Moscow faced up to the brewing crisis, U.S. Secretary of State
John Kerry said sanctions could be lifted swiftly if Putin takes
more steps to ease tensions and lives up to commitments under
ceasefire accords to end the Ukraine conflict.
"These sanctions could be lifted in a matter of weeks or days,
depending on the choices that President Putin takes," Kerry told
reporters in London.
Keeping the pressure on Moscow, President Barack Obama was expected
to sign legislation this week authorizing new sanctions on Russia
over its activities in Ukraine and providing weapons to the Kiev
government, White House spokesman Josh Earnest said.
But he has said he does not want to take new steps that are not
synchronized with European partners.
For the Russian economy, the currency crisis means a deeper
recession is more likely next year as high interest rates will crimp
growth. For businesses, it means more uncertainty and less access to
funding. For the central bank, it means a credibility crisis.
For Putin, it increases the risk of losing two of the main pillars
on which his support is based - financial stability and prosperity -
and brings an unwelcome policy headache at a time when relations
with the West are also in crisis over Ukraine.
"Putin rode the wave of higher oil prices in the years after he came
to power, but there is no question that the economics will start to
adversely impact the politics," said Nicholas Spiro, managing
director of Spiro Sovereign Strategy in London.
"The pieces are falling into place to start to affect the political
sustainability of this regime," he told Reuters.
Putin, who rose to power at the end of 1999, has enjoyed popularity
ratings above 80 percent since Russia reclaimed the Crimea peninsula
from Ukraine in March. He has no obvious rivals, with critics
accusing him of smothering dissent, and much of the state's big
business is in his allies' hands.
There has been little or no sign of panic from a public that gets
most of its news from state media that propagate Putin's view that
Russia is under attack from speculators and the West.
Unlike the scenes of chaos during the country's financial crisis in
1998, Tuesday morning saw no scramble at currency exchange points
and no panic buying of food. There have been almost no protests.
But opinion pollsters say discontent with the ruble's fall and
deepening economic gloom will gradually hit the emerging middle
class in the big cities and then spread to his support base in the
provinces.
"I think he has a store of support that can last 1-1/2 to two
years," Lev Gudkov, head of the Levada Center, an independent
polling group, said by telephone. "We will see the first signs of
discontent in the spring."
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Putin is aware that his predecessor, Boris Yeltsin, resigned early
after a financial crisis and that Soviet leader Mikhail Gorbachev's
grip on power slipped as the economy crumbled.
LIMITED OPTIONS
Such a time frame means Putin, the government of Prime Minister
Dmitry Medvedev and the central bank governor, Elvira Nabiullina,
need to act fast. But their options are limited.
Medvedev met with top central bank and government officials on
Tuesday to discuss the situation, according to the government's
website.
The central bank has now made three significant interest rate rises
in two months - 1.5 percentage points in October, 1 percentage point
last week and the 6.5 points overnight.
But, the impact has been minimal.
Russian officials say the advantage of a weaker currency is that
exports of oil, metals, grain and natural gas will earn more rubles
than before - feeding government revenues.
But it makes international debt payments much more expensive in
rouble terms and a credit crunch is looming in 2015, when Russian
companies and banks are scheduled to repay $120 billion in debts.
This will be even harder because access to global capital markets is
restricted by sanctions over Ukraine, and year-end foreign debt
redemptions are looming for this year as well.
Russian officials have said repeatedly the country will not impose
capital controls although many analysts say this looks inevitable.
Capital flight is expected to be far above $100 billion in 2014 and
2015.
But the central bank can ill afford to keep drawing on gold and
foreign currency reserves to prop up the ruble. The reserves have
already sunk to around $416 billion compared to more than $509
billion at the start of the year.
Putin is left relying on a sharp rise in the oil price. It is
currently below $60 a barrel, while a price of around $100 is needed
for the state budget to balance.
At a Moscow currency exchange kiosk, the money changer asked for 85
rubles for a dollar, though the rate given on the door was 80 and
the official rate was 60.
"I can't keep up, changing the rates advertised. Things change every
minute. People come and take whatever anyway. No one wants to be
left with rubles now," said a worker, who declined to be identified,
at one currency exchange point.
(Additional reporting by Elizabeth Piper, Alexander Winning and
Lidia Kelly; Editing by Sophie Walker)
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