Russia's central bank on Thursday jacked up its key lending rate again, in a bid to stem the ruble's rapid slide and slow rising prices but the currency swiftly sank to fresh lows.
The ruble has lost more than 40 percent of its value against the dollar since the beginning of 2014.
The rate hike from 9.5% to 10.5% was the second since late October, and the bank said further raises will follow "in case of further aggravation of inflation risks."
But investors were little impressed, and sent the ruble plunging further to a record low of 55.45 against the dollar and 68.98 against the euro shortly after the decision.
The Russian currency has lost over 40% of its value against the dollar since the beginning of the year, hammered by falling oil prices and the impact of Western sanctions against Moscow over the conflict in Ukraine.
The weakening currency has led to soaring consumer prices, with the bank predicting inflation to hit 10% for the year.
Growth is also expected to be "close to zero" through 2015 and 2016.
The 40 percent plunge in crude prices since June has hit Russia particularly hard, as half of the country's revenues stem from energy exports.
The central bank expressed hope however that Russia will begin to wean itself off dependency on oil and gas exports and develop industries of its own to replace increasingly expensive imported goods.
"Economic activity is expected to start recovering in 2017 due to the development of import substituting industries and increase in non-commodity exports," the bank said.
Russia's tit-for-tat food embargo against countries that imposed sanctions "contributes to higher competitiveness of Russian goods" however and supports domestic industries, the bank added.
- 'Fine line' -
Russia has spent over $5 billion so far this month alone on market interventions to shore up the ruble, and concern is growing at the rate of depletion of its foreign currency reserves, which are down a fifth since the summer of 2013.
Replenishing its reserves is proving tricky as oil revenues have slumped, the country's access to foreign borrowing is severely limited by Western sanctions, and investment has plummetted due to uncertainty over further embargoes.
Using rate hikes as a means to maintain support for the ruble carries the risk of further strangling growth.
Nevertheless, since March, when Russia annexed the Crimean peninsula, the lending rate gone up by five percentage points.
"The Central Bank has to tread a fine line between tolerating a weaker ruble and not allowing it to spiral out of control," Capital Economics said, adding that oil prices remain a "wild card" in the ruble's performance.
The 1% hike "was the minimum the central bank had to deliver," the analysts said, adding that they expect further raises -- at least another percent in the first half of 2015.
Russian President Vladimir Putin last week blamed the ruble's fall on "speculators" while Prime Minister Dmitry Medvedev on Wednesday warned against "hysterics", assuring Russians that he keeps his own savings in the national currency.