Against the backdrop of a steep fall in the Russian ruble, the Central Bank of the Russian Federation raised the interest rate to 12%.
The Russian ruble fell below 100 per dollar on Monday for the first time since March last year. Today, the Central Bank of the Russian Federation called an emergency meeting and raised the interest rate to 12% to try to save the national currency. Western experts are skeptical about such actions and say that it will only slow down the “bleeding” of the Russian economy.
How much the ruble fell
On the morning of August 14, the ruble was trading at around $101. Note that this is not a record low level of the Russian currency – in March 2022, after Moscow launched an invasion of Ukraine, it reached around 120 per dollar. But the ruble’s value yesterday was about half its price in June 2022, when it hit a multi-year high.
Thus, the ruble has fallen by 35% this year because of the war against Ukraine, although Russian President Vladimir Putin has insisted that Western sanctions have limited effect.
The ruble’s slump, along with the Turkish lira and the Argentine peso, puts it as one of the top three worst-performing emerging market currencies, according to Bloomberg.
In the Russian Federation began to find out who is to blame
The Russian leadership is confused about the reasons for the collapse of the ruble and shifts the responsibility for it to each other. Thus, Putin’s economic adviser Maxim Oreshkin said that the Kremlin “wants to have a strong ruble” and blamed the collapse of the national currency and the acceleration of inflation on the “soft monetary policy” of the Russian Central Bank Federation.
In turn, the Russian Central Bank, which raised interest rates more sharply than expected in July and last week stopped buying foreign currency for the rest of the year to support the Russian currency, is offering another explanation for the collapse of the ruble. In particular, the deterioration of the country’s trade with foreign partners.
Attempts by the Central Bank
Against the backdrop of a falling ruble, Russia’s Central Bank today raised its key interest rate by 3.5 percentage points to 12%. This decision was made at a special meeting to “limit the risks of price stability.”
“The continued growth in domestic demand, which exceeds the capacity to expand production, increases the underlying inflationary pressure and influences the dynamics of the ruble exchange rate,” the bank said in a statement.
“The effect of ruble devaluation on prices is gaining momentum, and inflationary expectations are growing,” they added.
The Central Bank of the Russian Federation also said that this move is aimed at reducing inflation to 4% next year. At the same time, annual consumer price inflation in Russia in July reached 4.3%.
What forecast was given to the West
In general, Western analysts are skeptical about the “emergency decision” of the Central Bank of Russia and believe that it will not solve the problem of the ruble.
“Today’s rate hike will only temporarily slow the bleeding. The depreciation of the ruble is the result of many factors acting simultaneously against Russia,” Liam Peach, senior emerging market economist at Capital Economics, wrote in a note.
Those factors include falling energy prices and export earnings, as well as difficulty attracting foreign capital due to sanctions, he added.
This opinion was shared by US Treasury Secretary Janet Yellen. He believes that the fall of the ruble reflects the fact that the sanctions, as well as the war, “are causing the Russian economy to tire.”
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Source: korrespondent
I am David Wyatt, a professional writer and journalist for Buna Times. I specialize in the world section of news coverage, where I bring to light stories and issues that affect us globally. As a graduate of Journalism, I have always had the passion to spread knowledge through writing.