Russian rouble dives despite shock rate rise to 17%

Russia's rouble has slipped back near its all-time low despite a dramatic move by its central bank overnight.

It increased rates from 10.5% to 17% in an attempt to boost the currency's value against the dollar.

The rouble has lost almost 50% against the US dollar this year as falling oil prices and Western sanctions continue to weigh on the country's economy.

On Monday, the dollar bought as many as 67 roubles, the rate rise cut that to 58 per dollar but it is now back at 66.

Russia just last week raised rates by 1%, a move that had little impact. The rouble's slide this week prompted by fears the US was considering a fresh set of sanctions against the country for its support for separatists in Ukraine.

The 60 mark is considered a 'psychological barrier' for Russia's national currency, says the BBC's Moscow correspondent, Steve Rosenberg.

Neil Shearing, chief emerging markets economist for Capital Economics, said the rate rise 'could prove to be a turning point in the 2014 rouble crisis'.

'The price, however, will be a further tightening of credit conditions for households and businesses and a deeper downturn in the real economy in 2015,' he said.

Russia's central bank has previously tried unsuccessfully to stabilise the currency, buying roubles in the markets.

It has spent more than $70bn (£44.7bn) supporting the rouble since the start of the year.

Analysis: Steve Rosenberg, BBC News, Moscow

When Russia's Central Bank raised its base rate by one percentage point last week, it was like a doctor giving a seriously ill patient a headache tablet.

Now, it seems, the bank has reached for the defibrillator.

The 6.5% percentage point increase in the key rate to 17% is a desperate measure. But then the situation is looking increasingly desperate.

On Monday, the rouble suffered its sharpest fall in more than 15 years, losing about 10% of its value against the dollar. Moscow's RTS share index plummeted 10%.

On the streets of Moscow yesterday, there was no sign of panic, there were no queues outside banks. But the Central Bank knows it needs to bolster the national currency to prevent panic from setting in. Hence the large rise in the key interest rate.

But there is a risk. High interest rates slow economic growth, and that's not good with Russia on the verge of recession.

'This decision is aimed at limiting substantially increased rouble depreciation risks and inflation risks,' the central bank said in a statement. The decision is effective from Tuesday.

The leap in rate follows an increase to the prior rate of 10.5% on 11 December and an increase of 1.5% to 9.5% in October.

Last week, the World Bank warned that Russia's economy would shrink by at least 0.7% in 2015 if oil prices did not recover. It says an oil price of $70 a barrel would leave it with a fall of 1.5%. Capital Economics' latest prediction is for a contraction of 2%, should the price of oil remain close to its current price of $60 a barrel.

Raising interest rates has its own risks, as more expensive borrowing can itself slow growth. But it may also stem the tide of money leaving the country.

Oil prices are at levels not seen for five-and-a-half years. US benchmark crude West Texas Intermediate is around $55 a barrel, while North Sea Brent crude traded below $60 a barrel. Both benchmarks have fallen by almost half since June.