- Rouble Plunge and Emergency Response: Russia Raises Interest Rates to 12% After Rouble Hits 16-Month Low
- Inflation and Economic Pressures: Interest Rate Increase to 9% Aimed at Controlling 4.4% Inflation Rate Amid Economic Challenges
- Sanctions and Depreciation: Western Sanctions and Ukraine Conflict Contribute to Rouble’s Depreciation and Economic Strain
After the rouble fell to its lowest value in 16 months, Russia increased interest rates to 12%.
On Monday, the currency dropped below 100 per dollar, prompting the Russian central bank to convene an emergency meeting.
The Bank of Russia has decided to raise interest rates from 8.5% to 9.0% to curtail inflation, which in August reached 4.4%.
The Russian economy has been under increasing strain as a result of rising imports relative to exports and rising military expenditure for the Ukraine conflict.
“Steady growth in domestic demand exceeding the capacity to expand output exacerbates the underlying inflationary pressure and influences the dynamics of the rouble’s exchange rate through increased import demand,” the Bank of Russia said in a statement.
The bank stated that “inflationary pressure” was increasing, but that its goal was to reduce inflation, the rate at which prices rise, to 4% by 2024.
Western nations have imposed sanctions on Russia in response to its invasion of Ukraine in February 2022.
Following the outbreak of war, the rouble plummeted but was later supported by capital controls and oil and gas exports.
However, it has lost roughly a quarter of its value against the US dollar since the invasion of Ukraine, and this week it took more than 100 roubles to purchase one dollar.
Tuesday saw a modest recovery to 98 roubles per dollar, but the currency remains significantly weaker than it was a year ago.
Not for the first time has the Bank of Russia aggressively raised interest rates. When Russia initially attacked Ukraine, the bank increased interest rates from 9.5% to 20% but subsequently began lowering them.
According to Liam Peach, senior emerging markets economist at Capital Economics, the latest increase will only have a short-term effect.
Due to sanctions, “Russia will struggle to attract capital inflows,” he said.
Analysts cite the impact of Western sanctions on Russia’s trade and economy as a significant factor in the rouble’s depreciation.
Since the outbreak of war, several EU nations reliant on Russian oil and gas have vowed to wean themselves off imports from the nation and seek alternative suppliers.
EU leaders enacted a price cap to limit Russia’s earnings from crude exports, and the nation has been excluded from Swift, an international payment system utilized by thousands of financial institutions.
