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Moscow - The Russian currency crashed to unprecedented lows on Tuesday as it reached 80 roubles to the dollar and 100 to the euro, testing Vladimir Putin's ability to ride out a economic storm and prevail in his confrontation with the West.
Russia's emergency midnight move to raise interest rates to 17% failed to arrest the collapse of the rouble with the currency accelerating its slide amid falling oil prices and Western sanctions over the Kremlin's support for the uprising in Ukraine.
With the Russian government highly dependent on oil exports for revenue, the fall in oil prices by nearly 50% in the past six months has raised anxiety, with the central bank itself warning of the possibility of a 5% economic contraction next year.
READ: Russian rouble collapses as oil prices decline
After dropping by 20% during the day, the rouble bounced back slightly in late afternoon trade to stand at 72 against the dollar and nearly 91 against the euro.
The worsening economic outlook and looming recession present a serious challenge for President Vladimir Putin, whose social compact with Russians has been based on years of economic stability and relative prosperity.
Some observers said the reasons behind the vertiginous fall in the ruble could not be explained by economic factors alone.
"The rouble's worth reflects the worth of Putin's rule in the eyes of the market," said political observer Yulia Latynina.
"You can fool a voter but you cannot fool the markets."
Putin, who has repeatedly dismissed economic trouble as temporary, remained conspicuously silent on Tuesday.
His spokesperson Dmitry Peskov chalked up the economic turbulence to "emotions and speculative sentiment" and referred all questions to the government.
Prime Minister Dmitry Medvedev called an emergency meeting involving top Kremlin aides and key ministers.
Foreign Minister Sergei Lavrov for his part said he had "very serious reasons" to think Western sanctions were an attempt to force regime change in Moscow.
The collapse of the rouble reflects what many economists call a crisis of confidence in the Russian economy amid Putin's confrontation with the West and his unwillingness to change tack over Ukraine.
"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."
Konstantin Kalachev, head of the Political Expert Group think tank, said Russians' deteriorating livelihoods would deliver a body blow to Putin, whose approval ratings have been sky-high following a patriotic surge after the seizure of Crimea in March.
"A collapse of Putin's ratings in 2015 is unavoidable," he said.
While many Russians say the impact of the rouble 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 earlier 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 evening, sliding 9.5% in a single day, its largest one-day fall since the 1998 crisis, only to fall by 20% on Tuesday.
The slide came as the bank warned that low oil prices could trigger a contraction of nearly 5% 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 already had a major impact on the country's economy.
"It cannot get much worse for Russia," said Heinz Ruettimann, emerging market strategist at Julius Baer, a Swiss private banking group.
"The final step for the perfect storm would be the introduction of capital controls."
Russian Central Bank Governor Elvira Nabiullina put on a brave face, suggesting that the Russian currency would bounce back.
"We believe that the rouble 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 bank's first deputy chairman Sergei Shvetsov said later in the day that the situation was "critical" and the bank would soon take additional measures.
"Trust me, the choice the central bank's board of directors made was one between bad and much, much worse," he said.
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 added that the Russian government should now adopt measures to help win back the trust of investors.
But Russia's business ombudsman Boris Titov disparaged the move, saying it did not make sense to save the ruble at the expense of the entire economy.
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