Russia raised interest rates again to stem the fall of the ruble
The Central Bank of Russia (BCR) announced on Friday that it will raise the official interest rate from 13% to 15%, the fourth consecutive increase in just three months, to combat inflation and the weakening of the ruble, which remains in difficulties despite their efforts. “Current inflationary pressures have increased significantly to a level higher than expected by the Bank of Russia,” the BCR said in a statement.
“Therefore, it is necessary to further tighten the monetary policy,” he justified, with the aim of “bringing” inflation, currently + 6%, to the “goal (…) of + 4% in 2024.” This increase was greater than the expectations of observers, who expected an increase of only one point.
The announcement comes just one day after the approval of budgets that plan a 68% increase in military spending by 2024. “The budget was an important factor in our decision,” the BCR president admitted in a press conference. , Elvira Nabiulina .
The war in Ukraine is a heavy burden on Russia’s finances and economy. Under the impact of the sanctions, the weakening of the ruble in recent months has been accompanied by the return of inflation, which has made many Russians fear their purchasing power. The reason, in particular, is the substantial reduction in income linked to the sale of hydrocarbons, under the weight of sanctions and the declared determination of the Europeans to end their energy dependence on Moscow.
The BCR has raised its key interest rate, for the first time in July (from 7.5% to 8.5%), then in mid-August, urgently, to 12%, to deal with the weakening of ruble, and at the end of mid- September up to 13%.
But this did not have the expected effect: the ruble remained weak against the euro and the dollar. On Friday, 93.3 rubles were needed to buy one dollar and 98.6 for one euro, levels that are almost as low as in March 2022, after the invasion of Ukraine.
In this gloomy context, the BCR has already said that it expects a slowdown in growth in the second half of 2023. However, it also noted “faster growth” than predicted in September. The financial institution also adjusted upward the inflation forecasts for 2023, “between 7 and 7.5%.” “The peak of inflation, in our opinion, will be reached in the spring of next year,” Nabiulina told reporters.