Russian central bank has to intervene on foreign exchanges to support rouble

Russia's central bank was forced to step in to defend the rouble on foreign exchanges markets after fears over the economy's vulnerability to a weak oil price sent the currency to a record low against the dollar.

Moscow was forced on Monday to abandon its hands-off policy towards the rouble amid heavy selling, unmatched since the Russian debt default of 1998.

The Russian central bank intervened when the rouble was down 6.5 per cent on the day against the US dollar, and by the close of trading the currency had recouped more than half its earlier losses. A bounce in the oil price from a fresh five-year low and a sense that the sell-off since last week's meeting of the Opec cartel has been overdone helped sentiment towards the Russian currency, which has been badly buffeted by a plunge of almost 40 per cent in the cost of crude since the summer.

Data from the US suggesting that drilling activity in the shale oil sector is being affected by lower oil prices also helped the rouble by pushing down the value of the dollar. Oil is denominated in dollars, so when the US currency falls oil becomes cheaper and more attractive for holders of other currencies.

With Moscow fearful that the drop in the value of the rouble makes Russia vulnerable to capital flight, Ksenia Yudaeva, the Russian central bank's deputy chairwoman, said households should not panic and a rise in interest rates to 9.5 per cent should encourage them not to convert savings into euros or dollars.

But Lee Hardman, currency strategist at Bank of Tokyo-Mitsubishi, said falling oil prices were "reinforcing the loss of investor confidence in the rouble".