By Ambrose Evans-Pritchard, International Business Editor
Vladimir Putin has lost control of Russia’s economy and may be forced to impose Soviet-style exchange controls after “shock and awe” action by the central bank failed to stem the collapse of the ruble.
“The situation is critical,” said the central bank’s vice-chairman, Sergei Shvetsov. “What is happening is a nightmare that we could not even have imagined a year ago.”
The currency spiked from 71 to 98 against the euro yesterday (12/16) in the biggest one-day drop since the default crisis in 1998 as capital flight gathered pace, despite a drastic rise in interest rates to 17% the day before (12/15) intended to crush speculators and show resolve. It closed at 87, and at this writing today (12/17) is at 83.
Yields on two-year Russian bonds spiraled to 15.36%, while credit default swaps are pricing in a one-third chance of a sovereign default. The shares of Russia’s biggest lender, Sberbank, fell 18%.
Neil Shearing, from Capital Economics, said the spectacular failure of the rate shock may bring matters to a head. “If a rise of 650 basis points won’t do the job, we are near the end. That means stringent capital controls,” he said.
In Washington, the White House said it had no intention of easing pressure on Russia to halt the freefall. “It is President Putin’s decision to make. The aim is to sharpen the choice that he faces,” said White House spokesman Josh Earnest yesterday.
After years of bluster and suggestions by Mr. Putin that the US is a paper tiger, the Kremlin is now coming face to face with the cataclysmic consequences of what it has done by invading Ukraine and changing Europe’s borders by force.