The fall of the ruble increases the pressure on the Bank of the Russian Federation to raise the key rate – media

The current fall in the ruble is increasing pressure on Russia’s central bank, forcing it to raise its key rate – perhaps the most since the start of the war in Ukraine, Bloomberg reports.

Since Nov. 21, when the US imposed sanctions on about 50 Russian banks, the currency weakened by nearly 8% against the dollar and the yuan, potentially adding to the inflation that Russia’s central bank is trying to curb by raising of interest rates at record highs.

The central bank said it was ready to raise borrowing costs, currently 21%, to the level needed to bring inflation back to its 4% target next year. According to media estimates, this may mean that the next step is to increase the rate to 25%.

Demand for foreign currency in the domestic market has increased sharply amid fears that the new restrictions will significantly limit the flow of foreign currency.

Officials are trying to play down the impact of the weaker ruble, saying it is “a boon for exporters.” But with inflation more than double the central bank’s target, a currency collapse could force regulators to act against painful lending conditions.

Since the beginning of the year, the ruble has lost 19% against the US dollar, making it one of the worst performing currencies in emerging markets. The Bank of Russia has been using interbank transactions to calculate exchange rates since June, when the United States imposed sanctions on the Moscow Exchange, which immediately stopped trading in dollars and euros.

In addition, suppliers of vegetables and fruits from countries that the Kremlin calls “friendly” have canceled many export contracts with Russia due to the collapse of the Russian ruble.