Frantic Russians are crowding foreign exchange windows, real estate offices and big-ticket retailers in search of dollars, euros, property, jewellery, cars, appliances and other assets that seem more likely to retain their value than the dwindling cash in their bank accounts.
Deep worries over the collapsing ruble are turning into panic in Russia amid the plunge in oil prices, after a stunning interest rate hike by the central bank failed to stabilize the battered currency.
The price of Brent crude slid nearly 2 per cent to $59.86 (U.S.) a barrel Tuesday, the lowest level in more than five years, putting even more pressure on the ruble, which has been dropping faster than the resource to which it is largely linked. The currency nosedived to a record low above 80 rubles to the U.S. dollar, before rebounding to close down 5.4 per cent at 68 to the dollar. That put its decline for the year at more than 50 per cent.
In a telling sign of how rapidly the situation has deteriorated, Apple Inc. revealed that it has suspended online sales in Russia while it reviews its pricing. Three retail currency trading platforms also stopped dealing in rubles Tuesday out of fear that liquidity will dry up if the government imposes currency controls to slow the flight of capital. Russian bank stocks were pummelled.
In an emergency meeting after midnight Monday, the Central Bank of Russia jacked up its key interest rate by a whopping 6.5 percentage points to 17 per cent, the highest level since the 1998 currency crisis that sent rates soaring and culminated in a humiliating Russian debt default.
The aggressive bank move followed weeks of fruitlessly expending reserves to stop a run on the ruble triggered by plummeting oil prices, deteriorating economic conditions and the considerable costs stemming from President Vladimir Putin's Ukrainian incursion, including the impact of stiff western financial sanctions.
The rate hike appeared to stanch the bleeding initially. But gains against the U.S. dollar and other major currencies quickly vanished.
"The situation is critical. We could not imagine this in our worst nightmare a year ago," Sergei Shvetsov, the central bank's deputy chairman, was quoted by the Interfax news agency as saying.
The bank plans other measures to stabilize the currency, he said without elaborating.
The country's economic prospects "look even bleaker than they did a few days ago," Andrew Kenningham, senior global economist with Capital Economics in London, said in a note.
"There is now little doubt that Russia is heading for a deep recession."
Economy Minister Alexei Ulyukayev scolded the central bank for waiting too long to intervene. Speaking after a high-level meeting to discuss measures to restore calm to financial markets, he also insisted capital controls are not one of the options.
But analysts say the next likely step will be limits on currency transactions.
And the pressure is growing. Mr. Putin's popularity, which has been riding high since his annexation of Crimea and incursions into eastern Ukraine, may not weather the fallout from a more severe currency shock.
Mr. Putin has insisted the ruble's steep decline stems not from economic problems but attacks by speculators. "We are currently seeing speculative jumps in the exchange rate, but I think that this should stop soon," he declared last month.
But the failure of the ruble to respond positively to the latest strong medicine spooned out by the central bank is a sign that it is indeed deteriorating economic fundamentals shoving the currency over the cliff.
"They've done a lot, but they haven't seemingly done enough," Sébastien Galy, senior currency strategist at Société Générale, said of the central bank intervention. "What they have been able to do is show that the move against the Russian ruble is really one which is driven by the fundamentals. If it had been speculation, then we should have seen the ruble appreciate very strongly."
Provided it can be stabilized, a weaker ruble does carry some potential benefits both for the economy and government finances. The currency has long been overvalued, because of its close link to energy, which has hurt manufacturing, agricultural and other exporters.
Also, as Russia's oil exports are priced in U.S. dollars, the net effect is more rubles for oil than the government's budget projections.