Title: Russian Central Bank Raises Interest Rates in Emergency Measure to Support Struggling Ruble
In a move to stabilize the declining ruble, Russia’s central bank has hiked interest rates by a significant 3.5 percentage points to reach 12%. This emergency decision comes as the currency has been severely impacted by Western sanctions associated with the ongoing conflict in Ukraine.
Citing the collapsing currency as a major inflation risk, the central bank stated that this significant rate hike is necessary to counteract the downward pressure on the ruble. Interestingly, just days before this emergency meeting, a deputy governor had dismissed concerns about the exchange rate, indicating a sudden change in stance.
The ruble’s value has plummeted to its lowest level since the early days of the war, dipping below the psychological floor of 100 rubles to a U.S. dollar. This decline has added immense pressure on the central bank to take immediate action to safeguard the currency’s stability. Kremlin mouthpiece Vladimir Solovyov even demanded action on his Russian state TV show, further raising the stakes for the central bank.
It is worth noting that Western sanctions have restricted Russia’s access to crucial intermediates, resulting in a negative spill-over effect on the country’s economy, amplifying the downward pressure on the ruble. The need for quick intervention also underlines the fact that the central bank’s previous rate hike in July was insufficient in addressing the mounting concerns.
Comparing this decision with the actions of the US Federal Reserve, it is evident that the Russian central bank has taken a much more drastic step. Fed Chair Jay Powell, over a period of six months and four consecutive meetings, raised rates at a much more gradual pace of 75 basis points.
Originally featured on Fortune.com, this article sheds light on the ongoing economic struggles faced by Russia and the measures taken to stabilize the ruble. As the nation grapples with Western sanctions and limited access to key intermediates, the central bank’s decision to raise interest rates acts as a desperate attempt to salvage the country’s currency and broader economy.