The Central Bank of Russia began taking measures on Tuesday to curb the sharp depreciation of the ruble and ensure price stability. In an extraordinary meeting of its board of directors, it raised the interest rate by 350 basis points, from 8.5% to 12%.
The first consequence was that after making the decision, the Russian currency, which on Monday exceeded the psychological level of one hundred units per dollar, gained some strength and strengthened to 95. But then it lost value again, which may indicate that Moscow will have to take further steps to ease the pressure on the ruble.
The central bank made the decision to increase the price of money “in order to limit the risks to price stability,” it explained in a statement.
According to the regulator, “inflationary pressure continues to rise. According to the August 7 estimate, the annual inflation rate rose to 4.4%. At the same time, the current rate of price growth continues to accelerate. On average, in the last three months, the current seasonally adjusted growth was 7.6% in annual terms. The same underlying inflation rate increased to 7.1%,” he detailed.
When arguing its decision to raise the interest rate, the Central Bank indicated that, if the current rate of price growth is maintained, there is a “significant risk” that inflation exceeds the target set for 2024, which is 4%. .
This is the second consecutive interest rate adjustment in just a month, a time in which the ruble’s decline has accelerated. In a July meeting, the central bank raised the rate from 7.5% to 8.5% per year.
The monetary authority also used the interest rate increase in February 2022, shortly after the Kremlin began its military offensive against Ukraine. Following the consequent economic sanctions, the ruble plunged. Among other measures, the central bank then decided to increase the rate from 9.5% to 20% per year.
In the first seven months of this year, the Russian currency has devalued more than 27% due to the war in Ukraine and Western sanctions. Nor has it helped political instability. The Russian currency accelerated its fall after the abortive armed rebellion of the Russian mercenaries of the Wagner Group, last June.
The ruble reached its lowest value two weeks after Russian President Vladimir Putin launched what he called a “special military operation” against Ukraine. On March 11, 2022, it was exchanged at 120 rubles per dollar. The shock measures that Moscow imposed, such as capital controls, in addition to the increase in export earnings, allowed the Russian currency to recover in the following months.
