Russia hikes interest rates as rouble plummets amid strain of Ukraine war
The currency has lost more than a fifth of its value against the US dollar since the invasion of Ukraine began last year. Western experts say the cost of military spending and sanctions are the main reasons.
Russia’s central bank has hiked interest rates by 3.5 percentage points to 12% in an emergency move after the rouble plunged in value.
It comes after the currency fell to an almost 17-month low of 101 roubles to one US dollar on Monday – a loss of more than a third of its value since the beginning of the year.
But experts said the drastic move was unlikely to have much of an impact on Russia’s economic woes while its war in Ukraine and Western sanctions continued.
The currency did strengthen slightly on Tuesday morning following the rate announcement, but by lunchtime it had slipped to around 99 roubles to the dollar.
“As long as the war continues it just gets worse for Russia, the Russian economy and the rouble,” said Timothy Ash, a senior strategist at Bluebay Asset Management.
He added: “Hiking policy rates won’t solve anything – they might temporarily slow the pace of depreciation of the rouble at the price of slower real GDP [gross domestic product] growth – unless the core problem, the war and sanctions are resolved.”
Russia’s Central Bank made the move only hours after Vladimir Putin’s economic adviser, Maxim Oreshkin, publicly criticised the institution on Monday for the currency’s fall.
He attacked the “loose monetary policy” of officials and insisted the bank had “all the tools necessary” to stabilise the situation.
Inflation in Russia reached 7.6% over the past three months, the central bank has said.
It added that demand for goods exceeded the country’s ability to expand economic output, increasing inflation and affecting “the rouble’s exchange rate dynamics through elevated demand for imports”.
“Consequently, the pass-through of the rouble’s depreciation to prices is gaining momentum and inflation expectations are on the rise,” it said in a statement.
The Kremlin’s public criticism of the bank adds further pressure with Russia heading towards a presidential election in March 2024 as the cost of living rises.