Russia's central bank has raised its key interest rate by 350 basis points to 12 per cent following an emergency meeting earlier in the day. The Bank of Russia in a statement said the decision to hike the key lending rate from 8.5 per cent to 12 per cent is "aimed at limiting price stability risks." The hike comes after the ruble plummeted past the 100 threshold against the dollar on Monday, primarily due impact of Western sanctions on Russia's balance of trade and as military spending soars, said a Reuters report.
"Inflationary pressure is building up. As of 7 August, the annual rate of inflation rose to 4.4 per cent while current price growth rates continue to increase. Over the last three months, current price growth amounted to 7.6 per cent on average in annualised terms on a seasonally adjusted basis. The same core inflation measure went up to 7.1 per cent," the Bank of Russia Board of Directors said in its statement.
According to a CNBC report, the Russian ruble briefly touched 100 to the dollar on Monday, nearing a 17-month low. As per the report, the ruble has lost around 30 per cent against the greenback since the turn of the year. Following this, the Bank of Russia said that the primary reason behind this plunge is the country’s shrinking balance of trade. The report noted that Russia’s current account surplus fell 85 per cent year-on-year from January to July.
After this Russian President Vladimir Putin’s economic advisor, Maxim Oreshkin, told Russia’s state-owned Tass that the depreciation of the currency and acceleration of inflation was mainly due to “loose monetary policy” and the Bank of Russia has “all the necessary tools to normalise the situation in the near future.”
Russia’s central bank later announced it will hold an extraordinary rate meeting on Tuesday.
According to Reuters, the roble pared some intraday gains after the decision, up 0.9 per cent at 96.79 as of 07.48 GMT.
The news agency also noted that the Bank of Russia last raised emergency rates in late February 2022, raising them to 20 per cent in response to Russia's deployment of soldiers to Ukraine. As significant inflation pressures abated in the second half of 2022, the bank gradually reduced borrowing costs to 7.5 per cent. The bank had held rates since its last drop in September 2022, but gradually upped its hawkish language, eventually rising by 100 basis points to 8.5 per cent at its most recent scheduled meeting in July. The next rate decision is scheduled for September 15.