(MENAFN- AFP) Russia's emergency midnight move to raise interest rates to 17 percent failed on Tuesday to arrest the ominous slide of the ruble as the currency set a new all-time record after a brief rally.
The ruble weakened to nearly 67 rubles against the dollar after bouncing back briefly to 61 rubles earlier Tuesday following the central bank's move to hike interest rates from 10.5 percent to halt the collapse of the ruble.
The ruble has now lost half its value since the start of the year amid collapsing oil prices and Western sanctions over Russia's support for the separatist uprising in eastern Ukraine.
The collapse of the ruble reflects what many economists call a crisis of confidence in the Russian economy amid the Kremlin's confrontation with the West.
The worsening economic outlook presents a serious challenge for President Vladimir Putin, whose social compact with Russians has been based on years of economic stability and relative prosperity.
"This is a major problem: the government obviously is not keeping up with the negative consequences of political decisions," said Nikolai Petrov, a professor at the Moscow-based Higher School of Economics.
"It is important not to allow the panic to spread among people."
- 'There's no bottom' -
While many Russians say the impact of the ruble collapse has yet to sink in, others say they are in a state of shock.
"The economic situation of the past few months has been worrisome and stressful. But what happened yesterday is a catastrophe," Yulia Kirillova, 43, told AFP in Saint Petersburg on Tuesday.
"I did not sleep last night, thinking about what to do. My business is on its deathbed. Yesterday's drop has shown that the situation is deteriorating, that it's unclear what to expect and there's no bottom."
The Russian currency hit a low of 64.4 rubles on Monday night, sliding 9.5 percent in a single day, its largest one-day fall since the 1998 crisis.
The slide came as the bank warned that low oil prices could trigger a contraction of nearly five percent next year.
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 had a major impact on the country's economy.
- Opinions divided -
Economists are increasingly concerned over Russia's economic outlook and the authorities' apparent reluctance to change tack over the Ukraine crisis as the economy heads into recession.
Putin has so far dismissed economic trouble as temporary.
Russian Central Bank Governor Elvira Nabiullina sought to put on a brave face, suggesting that the Russian currency would bounce back.
"We believe that the ruble right now is underappreciated along all the parameters: both when it comes to the state of the economy and the balance of payments," she said on national television.
The decision by the central bank to hike the interest rate sharply divided observers.
Respected former finance minister Alexei Kudrin approved the move, saying on Twitter that in current conditions it was "compulsory but correct."
But he said the Russian government should now adopt measures to help win back the trust of investors.
Alfa Bank sounded a similar note.
"While the Russian central bank may have addressed capital control fears with such an aggressive move, the main issue here would be winning back people's confidence, as it has been converting savings into dollars at a faster pace," said the bank.
But Russia's ombudsman for the rights of entrepreneurs, Boris Titov, disparaged the move, saying it did not make sense to save the ruble at the expense of the entire economy.
"During (Putin's) address to the nation we heard about the need to develop business, new technologies, investment and import substitution, but the central bank's decision is categorically against all of these," he said on Russian radio.
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