Mon. Oct 2nd, 2023
    Russian Central Bank Raises Key Interest Rate Amid Higher Inflation and Weaker Rouble

    The Russian central bank has announced a third interest rate hike in two months, raising its key interest rate by 100 basis points to 13 percent. This move comes as Russia grapples with higher inflation and a weaker rouble. In recent months, inflation in Russia has accelerated and remained stubbornly high, with the central bank failing to meet its target of four percent.

    The central bank stated that the decision to increase the key rate was due to the high inflationary pressure in the Russian economy and the depreciation of the rouble, which has lost around 30 percent of its value against the US dollar since the beginning of the year. The bank also mentioned that it would assess the feasibility of further rate increases in upcoming meetings.

    Capital Economics, an independent research firm, expressed skepticism that inflation would return to the central bank’s target of four percent by 2024 and anticipated more rate hikes in the future. Liam Peach, a senior emerging markets economist, highlighted that the central bank is committed to fighting inflation and that the economy is likely to continue overheating, putting more pressure on the bank to tighten monetary policy.

    This recent rate hike follows the central bank’s emergency rate hike in August, which occurred after the rouble hit its lowest level against the US dollar in over 16 months. President Vladimir Putin downplayed the weakening currency, stating that it requires careful research by the central bank and government authorities.

    Despite the economic effects of the conflict in Ukraine and the subsequent Western sanctions, Russian officials have largely shrugged off the impact on the economy. However, the ongoing challenges of higher inflation and a weaker rouble have prompted the central bank to take action with multiple rate hikes.

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