The Central Bank of Russia took measures yesterday Tuesday to stop the strong depreciation of the ruble and ensure price stability. In an extraordinary meeting of the board of directors, convened a day earlier, he raised the interest rate by 350 basis points, from 8.5% to 12%.
After the decision was announced, the Russian currency, which broke through the psychological level of 100 units per dollar on Monday, gathered some steam and strengthened to 95. But then gave back the initial gains, which which may indicate that Moscow will have to take more measures to relax the pressure on the ruble.
The central bank took the decision to increase the price of money to “limit the risks to price stability”, he explained in a statement. According to the regulator, “inflationary pressure is still increasing. According to the August 7 estimate, the annual inflation rate rose to 4.4%. At the same time, the current rate of price growth is still accelerating”, he detailed.
When justifying the decision to raise the interest rate, the Central Bank of Russia indicated that, should the current rate of price growth be maintained, there is a “significant risk” that inflation will exceed the target for 2024 of 4%.
This is the second consecutive adjustment of interest rates in a month. In July, the central bank raised the rate from 7.5 to 8.5 per annum.
The monetary authority also used the interest rate hike in February 2022, shortly after the Kremlin launched its military offensive against Ukraine. After the consequent Western economic sanctions, the ruble collapsed. Among other measures, the central bank then decided to increase the rate from 9.5% where it was to 20%.
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. Political instability hasn’t helped either. The Russian currency accelerated its decline after the aborted armed rebellion by Russian mercenaries of the Wagner Group in June.
The ruble hit 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 imposed by Moscow, such as capital controls, in addition to the increase in export revenues, allowed it to recover in the following months.
