Emergency Meeting: Russian Central Bank Raises Interest Rates to 12% Following Rapid Ruble Decline

Russia’s central bank took decisive action on Tuesday by raising interest rates by a significant 350 basis points to 12%, signaling its urgency to curb the rapid depreciation of the country’s currency, the ruble. The move comes amid concerns over the plunging value of the ruble, with President Vladimir Putin’s economic advisor, Maxim Oreshkin, attributing it to the central bank’s loose monetary policy. In response, the Bank of Russia swiftly called for an emergency meeting to reassess its key interest rate, which resulted in the decision for the significant rate hike.

The central bank justified its decision by stating that it aims to limit the risks to price stability caused by mounting inflationary pressure. In fact, the annual inflation rate in Russia has reached 4.4% in the first seven days of August, with ongoing upward pressure. Furthermore, price growth over the past three months has averaged 7.6% on a seasonally adjusted basis, while core inflation rose to 7.1% over the same period. The central bank attributed these inflationary pressures to the steady growth in domestic demand, which has outpaced the capacity for output expansion and led to increased demand for imports.

With these concerns in mind, the central bank’s decision aims to shape monetary conditions and domestic demand dynamics necessary to bring inflation back to 4% by 2024 and stabilize it around that level thereafter. While the ruble’s exchange rate initially strengthened following the announcement, investors remain cautious and the currency continues to fluctuate.

Looking ahead, Anatoly Aksakov, chairman of the Duma Committee on Financial Markets, indicated that once the ruble situation stabilizes, the central bank will gradually reduce interest rates. He also suggested that the ruble exchange rate is under state control. As of now, the ruble is trading just above 98 to the dollar.