Russian’s central bankers hiked interest rates more than expected to a surprise 9.5% as economic sanctions begin to bite on the rouble.
The interest rate was raised 1.5% from 8% in a bid to stem the tide of the falling rouble against the US dollar.
In the past few days, the troubled currency has hit an all-time low of 43.4 roubles to a dollar.
The sanctions imposed in the wake of Moscow’s annexation of The Crimea and falling oil prices have nudged a stumbling economy over the brink towards recession.
Financial markets are seeing a lack of confidence from investors and capital flight away from the rouble to safe haven currencies like the strengthening US dollar and British pound.
Diminishing currency reserves are another worry for the Russian government as billions of dollars have been spent to try to prop up the rouble to no avail.
Interest rates have almost doubled from 5% to 9.5% since March 2014.
Banks steeled for rate rigging fines
British and American banks have been squirrelling away millions of pounds in cash in advance of hefty currency rate rigging fines from regulators on both sides of the Atlantic.
Bankers are accused of running a currency rate rigging cartel and are expecting stiff fines and harsh retribution from regulators.
Royal Bank of Scotland has salted away £400 million, Barclays has put aside £500 million and US bank Citigroup is ready to write-off around £250 million.
The Financial Conduct Authority (FCA) is investigating the rate-rigging allegations on British markets and the Securities and Exchange Commission (SEC) in the US is expected to step in to the inquiry as well.
No announcement has been made by regulators, but markets see the movements of substantial amounts of cash as an indication that a ruling is on the way very soon.
Regulators only allow banks to set aside such significant funds if they have a reasonable expectation that trouble is on the way.
Other banks involved in the investigation include JP Morgan, UBS, HSBC, Morgan Stanley and the Bank of America.
Deutsche Bank is expecting the largest fines for involvement in the scandal – financial experts speculate the figure could be as much as £4 billion.
At this time, neither the banks nor regulators are ready to speak about the investigation.