IN THE world of central banking slow, steady and predictable decisions are the aim. So when bankers meet in the dead of night and raise interest rates by a massive 6.5 percentage points it suggests something is going very wrong. It is: the Russian currency crisis many feared is now a reality (see chart) and the mood in Moscow close to panic. Russians are right to worry: they are heading for a lethal combination of deep recession and runaway inflation.

Many of Russia’s woes start abroad. The country is highly dependent on its oil-and-gas firms. Hydrocarbons contribute over half the federal budget and two-thirds of exports. The state has big stakes in many energy firms, as well as indirect links via the state-supported banks that fund them. The oil price has fallen by almost half in the past six months—it dropped below $60 this week, its lowest level since the depths of the financial crisis. The rouble has followed oil down. The war that Russia has fomented in Ukraine is the second big foreign problem. America and the EU have imposed financial sanctions on many Russian firms, making it hard for them to borrow abroad. On December 12th American politicians agreed to supply weapons to Ukrainian troops, raising the possibility of a further escalation in the conflict. There are plans for further sanctions in the pipeline. Yet the crisis has now become more general. On December 15th Brent crude barely budged—it dropped by 1%—but the rouble plummeted, losing 10% of its value against the dollar, the worst drop since the previous rouble crash in 1998. The Central Bank of Russia is thought to have intervened, using $2 billion to buy roubles. This did not work, and nor did the midnight rate hike: the rouble lost another 11% on December 16th.

The trigger for this acceleration of the crisis is mysterious. One culprit could be the finances of the state-controlled energy giants, which include Gazprom and Rosneft. Optimists had seen them as a reliable source of dollars. But Rosneft, for one, also has big foreign debts to service or redeem. On December 12th it issued an $11 billion rouble-denominated bond at a lower yield than government bonds were offering that day, which the central bank immediately said it would accept as loan collateral. Some see this as a worrying commingling of government and corporate debt. Around $115 billion in dollar-denominated debt falls due before the end of 2015.

The panic has spread to other assets. The Russian state has around $11 billion in rouble-denominated and $60 billion in dollar debt. The yields on these have risen to 15% and 8% respectively, higher than Greece. Shares in firms exposed to Russia—including French and Austrian banks—are losing value too.

The dollar-debt problem will get worse. Credit-rating agencies including Standard & Poor’s and Fitch were already pessimistic about Russia. With the central bank forecasting a 4.5% drop in GDP in 2015 a downgrade is a certainty. If debt is reclassified as junk, Russia’s investor base will shrink. The volume of debt may jump too. The blurred lines between the state and Russian firms mean the Kremlin may end up on the hook for much of the $614 billion in external debt owed by banks and other firms. No wonder confidence in the prop provided by the Kremlin’s foreign-exchange reserves, officially valued at $370 billion, is draining.

With rate rises and sales of foreign reserves proving ineffectual, Russia needs other options to stem the rouble’s plunge. One would be to try to negotiate extensions to bonds coming due in the hope of trimming demand for dollars, says Tim Ash of Standard Bank. A more muscular option, to which the central bank and the ministry of finance are opposed, is capital controls: the Kremlin could limit people’s ability to convert roubles into hard currency and take it out of the country.

Mr Putin may be inspired by Malaysia, which in September 1998, at the height of the East Asian financial crisis, choked off ringgit speculation by fixing the exchange rate and cutting interest rates. It capped the amount of currency residents could take abroad, and forced foreigners to hold proceeds from ringgit asset sales within the country. But Russia’s economy is in a worse state than Malaysia’s was and its lawless financial system would prove leaky.

Even if Russia does manage to impose capital controls 2015 will be grim. Before this week’s turmoil inflation was running at 9.1%. Now creeping price rises have been replaced by something more ominous: Russian shopkeepers have started to re-price their goods daily. Less than two weeks ago one dollar could be bought with 52 roubles; on December 16th between 70 and 80 were needed. Shops defending their dollar income need a price rise of 50% to offset this. Russian workers’ pay will be cut massively in real terms.

That explains why Russians are losing confidence in their currency. On the streets of Moscow, the talk is all about the crisis. State banks are imposing limits on the amount of dollars and euros they sell. A branch of Sberbank in central Moscow will sell only $2,000. VTB, another state bank, is promising $3,000 but only “tomorrow if you come early and if you are lucky”. Even if the demand calms (or if bans on using dollars are imposed) Russian banks face huge problems. The shrinking economy, falling inflation-adjusted incomes and massive interest-rate hikes mean that defaults are bound to rise.