A woman walks past a board in Moscow listing foreign currency rates against the Russian rouble. Source: AFP

“This decision is aimed at limiting substantially increased rouble depreciation risks and inflation risks,” the Bank of Russia said in a statement posted on its website.

The rouble yesterday suffered a mini-crash, falling by 9.5 per cent in a single day despite repeated interventions by the central bank.

A falling rouble threatens to send inflation in Russia to dangerously high levels.

The slide came as the bank warned the low oil price could trigger a contraction of nearly five per cent next year and as tensions surged with the United States over the Ukraine crisis.

A dramatically higher interest rate — which was set at 5.5 per cent at the beginning of the year — now threatens to further strangle the economy.

The rouble broke through the level of 64 to the dollar and 78 to the euro for the first time even though the Bank of Russia has already spent about $US6 billion so far this month to slow the currency’s slide.

Russian news agencies said the rouble briefly jumped from 61 back to 60 on the dollar yesterday due to the latest central bank intervention, but it did not stop a further slump.

Having lost over 49 per cent of its value against the dollar this year, the rouble’s slide is now worse than the 48 per cent of the hryvnia in Ukraine, which is fighting a war and is on the brink of bankruptcy.

Russia’s support of rebels in eastern Ukraine and its annexation of Crimea brought on Western sanctions that gave the rouble its first knock earlier this year.

Geopolitical tensions have stepped up in recent days following votes by US lawmakers approving more sanctions against Russia and the delivery of up to $US350 million worth of US military hardware to Kiev.

However the heart of the problem is plunging oil prices.

Half of Russia’s revenues come from oil and gas, and the drop in the price of crude oil by half in the past six months has dealt a body blow to the country’s finances and Russians’ confidence in the rouble.

The rouble’s fall is “driven by sentiment and fear,” said Chris Weafer, who runs Macro Advisory consultancy.

“The rouble is now in free fall based on this fear factor,” he added. “The normal rules of economics don’t apply,” Mr Weafer said, adding that “the government has to find a way to stop this decline and restore confidence.”

Economist Maxim Buyev wrote in the Vedomosti daily that “the government must offer a clear plan of reforms” to restore confidence in the currency.

Neil Shearing, chief emerging markets economist at London-based Capital Economics, said the rouble’s slide has led to “a growing sense that the currency crisis is spiralling out of control”.

He said it was also increasing speculation that government could undertake stricter measures like capital controls.

“In the absence of an improvement in relations with the West and a lifting of the economic and financial sanctions on Russia, the appeal of capital controls and external debt default will grow,” he said.

Bank of Russia chief Elvira Nabiullina said last week that the bank is prepared to spend up to $US85 billion over the next year to prop up the rouble if necessary.

The central bank yesterday provided the latest grim outlook for the Russian economy, predicting in a “stress scenario” written in its quarterly report on monetary policy a contraction of 4.5-4.8 per cent next year if oil prices remain at $60.

The government’s 2015 budget is balanced on the assumption of selling oil at $US95 per barrel, meaning the government’s finances will be strained if there is not a quick rebound in crude prices.

Vedomsti reported that the government plans to cut budget spending by 10 per cent in 2015. The cuts would impact transportation programs as well as spending on space, aviation and development of the Far East, the report said.

The central bank also said inflation will peak at 11.5 per cent in the first quarter of 2015 before going down, adding that it will go back to the target rate of four per cent only by the end of 2017.

AFP