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A sharp overnight rate hike failed to ease pressure on the rouble on Tuesday, as the market continued to test the central bank's resolve to defend the currency and piled more pressure on Russia's faltering economy.
The rouble opened around 9% stronger against the dollar following the overnight 650 basis point rate hike, but it quickly reversed gains and fell to new lows, pushing losses this year against the dollar to 50%.
At 0907 GMT, the rouble was down around 2.6% against the dollar at 66.14 after hitting a new all-time low and was 4.8% weaker versus the euro at 82.67 weighed by lower oil prices, Western sanctions over Ukraine and increasing market panic.
Analysts said Tuesday could be judgment day for the rouble after it plunged around 10% on Monday, its worst fall since the Russian financial crisis in 1998.
"The central bank will have a very hard time stabilising the rouble as long as the sharp sell-off in oil prices continues, so it might turn out that this very aggressive rate hike will not be enough," Vladimir Miklashevsky, an economist at Danske Bank, said in a note.
Brent crude prices fell over $1 per barrel on Tuesday to below $60 for the first time since July 2009, hurting the outlook for Russia's oil-dependent economy.
President Vladimir Putin has blamed both the slide in oil and the rouble on speculators and the West. A sliding rouble poses a major test for Putin, since his popularity in part depends on his reputation for guaranteeing prosperity and stability.
"If such an interest rate rise didn't impress the market, then they (the central bank) have left the option of interventions of $10 billion a day. They have returned to the market, they are in (the market) every day," said Natalia Orlova at Alfa Bank.
Russia's central bank has spent over $80 billion defending the rouble so far this year, including more than $8 billion since they floated the rouble in November. The country still has reserves of around $420 billion.
Oil and Western sanctions imposed on Russia for its role in the Ukraine crisis have been the main force behind the rouble's demise, but on Monday, analysts said, the currency was caught up in sheer panic.
"This was obvious proof that what now rules the Russian currency is not oil, or even waiting for it to move, but panic fuelled by a large number of rumours about the return of our country to the "98-year" regime," said Alena Afanasyeva, a senior analyst at Forex Club in Moscow.
In 1998, the rouble collapsed within a matter of days, forcing Russia to default.
