The Russian Central Bank has had to hike interest rates to defend the rouble and stem capital flight since President Vladimir Putin said he had the right to intervene to protect the rights of ethnic Russians in Ukraine.

Russian forces' seizure of Crimea has been bloodless so far, but it has cost Moscow dearly. The central bank has spent at least $13 billion on defending the rouble and Russian equities have tumbled, knocking $60 billion off the MICEX index <.MCX>.

The tightening of the one-week repo rate, by 150 basis points to 7 percent, interrupts the central bank's long-promised shift towards inflation targeting and risks tipping the Russian economy into recession in order to ensure temporary financial market stability.

Sunday's referendum in Crimea, on whether the region should join Russia, carries additional risks of a further rate hike.

But "if the situation remains more or less stable, like now, the central bank is unlikely to change anything (rates)," said Dmitry Polevoy, an economist at ING Bank.

The risk of the West imposing sanctions or of Crimea voting in favour of joining Russia are likely to encourage investors to ditch Russian assets, with economists predicting as much as $100-$150 billion in capital will flee Russia this year.

"For the time being, we think monetary policy will be under manual control, dominated by the need to stabilise the rouble," Jacob Nell and Alina Slyusarchuk, economists at Morgan Stanley, wrote in a note.

"If tensions escalate, and foreign currency demand rises again, more tightening is possible. If tensions ease, we think the central bank will initially hold rates, but increase the rouble's flexibility again."

Just a couple of weeks ago, analysts saw the central bank keeping its monetary policy unchanged until the fourth quarter, worrying about risks to inflation.

VICTIMS OF FINANCIAL MARKET STABILITY

Panic on the market, forcing repeated currency interventions and rate rises, has shunted worries about the stagnating economy to the sidelines.

Although many economists say the central bank had no option but to raise borrowing costs and douse the rouble's volatility, such moves are doomed to backfire.

"Raising (benchmark) rates can translate into increased lending rates, which increases the risks of recession," said Alexander Morozov, chief economist for Russia at HSBC in Moscow.

The central bank's latest forecast from mid-February envisages Russia's gross domestic product (GDP) expanding by 1.5-1.8 percent this year.

"In the first and second quarter we can easily see negative GDP data," said Vladimir Kolychev, an economist at VTB Capital, who reckons the central bank will spend the next three months defending the rouble before tensions ease.

Ivan Tchakarov, an economist at Citi in Moscow, cut his GDP forecast for this year to 1 percent from previous 2.6 percent.

"The central bank was right, in our view, to hike rates ... but this will also come at the cost of stronger headwinds to growth even if the central bank fully unwinds the hike by year-end," he said in a note.

A weaker rouble will push up the prices of imported goods, alarming Putin's inflation-conscious electorate.

"It makes the goal of 5 percent (inflation at the end of the year) difficult to achieve," HSBC's Morozov said.

The central bank says recent moves to defend the rouble have not changed its commitment to shifting its chief monetary tool to inflation targeting and away from controlling the exchange rate by 2015.

But economists are not so sure.

"If Russia annexes Crimea ... then we can forget about inflation targeting," ING's Polevoy said.

(Reporting by Oksana Kobzeva and Lidia Kelly; Writing by Lidia Kelly; Editing by Ruth Pitchford)

By Oksana Kobzeva and Lidia Kelly