Russia’s central bank raised its key interest rate to 15 percent in an attempt to curb inflation and shore up the weak ruble. This is the fourth increase in interest rates in a row. Although it was expected, the market expected it to be at a lower level, but instead they were raised by two percentage points.
The rate of price increases around the world remains high, and the invasion is partly to blame Russia to Ukraine. Russia itself is facing inflation, which reached 6 percent in September. Government spending has also recently increased in Russia, which allocates significant resources to its war machine.
Significant rate increase from July
As the BBC reminds, interest rates in Russia have been raised by 7.5 percentage points since July, which aims to bring inflation down to the target level of 4%.
The increases included an unplanned extraordinary decision in August. It was at that time that a dollar cost over 100 rubles and the Kremlin called for a tightening of monetary policy.
“The current inflation pressure has increased significantly to a level above the expectations of the Bank of Russia,” the institution said on Friday. According to the BBC, demand for goods and services exceeded supply, which indicated a high growth in lending. There is also growing pressure on the Russian economy due to faster growth in imports than exports and rising military spending due to war in Ukraine.
The ruble depreciated sharply after the outbreak of the war, but was quickly strengthened by Kremlin capital control and oil and gas exports. However, since Russia’s invasion of Ukraine began, the currency has overall lost about a quarter of its value against the US dollar.
As the BBC reminds, this is not the first drastic one interest rate increase Bank of Russia. When Russia first attacked Ukraine, the bank raised interest rates from 9.5 percent. to 20 percent, but soon afterwards he began to reduce them.
Western sanctions are having an effect
However, interest rate increases can only help stabilize the economy, not solve the problems. Analysts say Russia may have difficulty attracting investment due to Western sanctions. Economists say that the main factor in the weakening of the ruble are trade-related sanctions.
After Russia attacked Ukraine, many European Union countries that had previously purchased Russian oil and gas agreed to stop importing it. Many countries have managed to completely abandon these supplies and find an alternative.
The exclusion of Russia from the Swift international payment system, which is used by thousands of financial institutions, was also important. This hampers the ability of the Russian state and Russian companies to conduct transactions.
The fact that sanctions work also confirms European Commissionwhich in August published an analysis of Russia’s economic data, which showed that coal exports had fallen and oil production was down by a quarter.
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