RUSSIA’S currency crisis, dubbed Black Tuesday, yesterday sparked memories of the UK’s own foray into drastic rate hikes – when sterling crashed out of the Exchange Rate Mechanism (ERM).
Britain’s Black Wednesday, as it became known, saw the Bank of England hike interest rates twice in one day in 1992 to ward off currency speculators and keep sterling inside the ERM.
After the pound came under intense selling pressure on the morning of 16 September, Prime Minister John Major and chancellor Norman Lamont hiked rates from 10 per cent to 12 per cent to stem the slump in sterling.
Traders shorting the pound, led by hedge fund investor George Soros, responded by selling more. Lamont raised rates – and eyebrows – once again, this time to 15 per cent, but to no avail. “It became an avalanche of selling,” Soros later said.
The Bank surrendered later that evening, exiting the ERM and permitting a humiliating devaluation of sterling.