Well, we have our answer: the Russian central bank’s last-ditch effort to stop capital flight didn’t work. It was indeed taken by the market as a sign of desperation, not strength. The ruble recovered a bit right after the surprise interest hike in the middle of the night, but by mid-morning panic had settled back in and the ruble was once again in free fall. Even the enticement of 17 percent interest wasn’t enough incentive for people to keep their rubles in Russian banks:
By early afternoon in Moscow, the ruble dropped sharply, reaching 80 to the dollar, a record low and a 35% decline from opening levels when it rallied briefly. At 1630 local time, the dollar was trading around 73 rubles….Deputy Chairman Sergei Shvetsov called the situation “critical,” the Interfax news agency reported. “At lot of (market) participants are in serious condition because of these events.”
“The choice the central bank made (to raise rates) was between very bad and very, very bad,” he said, noting that the bank could yet take more measures to stabilize the market….Economists warned that the central bank appeared to be losing control of the market and might have no alternative but to restrict trading. “Capital controls as a policy measure cannot be off the table now,” said Citigroup’s Mr. Costa.