Olga Tanas and Anna Adrianova wirite: The Russian central bank said it would raise its key interest rate to 17 percent from 10.5 percent, effective today. The move was the largest single increase since 1998, when Russian rates soared past 100 percent and the government defaulted on debt.

The ruble lost 2.5 percent to 66.0985 against the dollar as of 12:53 p.m., reversing an early gain prompted by the news.

The announcement, as well as its timing, underscored the financial straits in which Russia now finds itself. If sustained, the new higher rates would squeeze an economy that is already being hurt by sanctions led by the U.S. and European Union, and by a collapse in oil pirces.. Some analysts said they doubted the economy could withstand such high rates for long.

The ruble, which has depreciated 50 percent this year against the dollar, is the worst performer among more than 170 currencies tracked by Bloomberg. It gained almost 11 percent today, before weakening to a record.

“In order to limit the negative effects of such depreciation of the national currency on the Russian economy, we decided to increase the key rate,” Russian central bank Governor Elvira Nabiullina said on state TV channel Rossiya 24. “We really must learn to live in the ruble zone, rely to a large extent on our own sources of financing.”

So far this year, Russia has spent $80 billion of its foreign-exchange reserves in an unsuccessful attempt to prop up the ruble. Brent, the grade of oil traders look at for pricing Russia’s main export blend, lost as much as 3.3 percent to $59.02 on the London-based ICE Futures Europe exchange, trading below $60 a barrel for the first time since July 2009.

The economy may shrink 4.5 percent to 4.7 percent next year, the most since 2009, if oil averages $60 a barrel under a “stress scenario,” the central bank said yesterday. Net capital outflow may reach $134 billion this year, more than double last year’s total.

Others were more optimistic, saying the action was big enough to arrest the ruble’s record decline. “The central bank is trying to stop the avalanche, and such a massive hike may be sufficient,” said Slava Breusov, an analyst at Alliance Bernstein in New York.   “No one seems to be thinking what it will do to the economy, as the priority is to stop the ruble plunge.”