Russia, the ruble collapses. Central bank raises interest rates to 12%

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The Russian central bank raises its key rate to 12%, in the aftermath of the ruble’s fall to its peak. The decision to raise its key interest rate to 12% from 8.5% previously “was taken to limit risks to price stability,” the bank said in a statement released after convening an extraordinary meeting. this morning. The Bank of Russia therefore chose to raise its key rate by 15 basis points to 12% from 8.5% annually. The goal is to bring inflation back to 4% in 2024 and stabilize it near 4% in the future. The move will serve, at least in part, to stem the free fall of the ruble: following the decline in revenues from energy exports, the Russian currency, after having suffered a fall in recent weeks, yesterday touched the lowest levels since March 2022 , shortly after the start of the Russian military operation in Ukraine (THE SPECIAL – THE UPDATES). The dollar has broken through the psychological barrier of 100 rubles and the euro that of 110 rubles.

The criticisms of Putin’s adviser

After yesterday’s announcement, the dollar fell below 99 rubles and the euro below 108. But it certainly cannot be said that the alarm has ceased. And confirming the climate of nervousness are the criticisms expressed by President Vladimir Putin’s economic adviser, Maxim Oreshkin, against the central institution led by Elvira Nabiullina, who last year was hailed as the architect of the rescue of Russia’s finances in the face of the unprecedented sanctions imposed by Western countries. “The main cause of the weakening ruble and accelerating inflation is soft monetary policy,” Oreshkin said in an interview with the Tass news agency. “A weak ruble complicates the structural transformation of the economy and has a negative effect on the real income of the population.”

The war in Ukraine and the performance of the ruble

“It is in the interest of the Russian economy to have a strong ruble,” Oreshkin concluded. But the Bank of Russia explained that the weakening of the national currency is caused by the sharp reduction in the current account surplus. In particular, the reduction in oil and gas prices, the main source of income from abroad, and an increase in imports weigh heavily. Since the attack on Ukraine in February 2022, the ruble has been on an up-and-down course. Initially collapsing to 120 against the dollar, then recovering during the summer of the same year to reach the highest levels in the last 7 years, thanks to very high energy prices and interventions by the Central Bank, which raised the interest rate interest of up to 20% and placed strict capital controls. Finally, since the beginning of this year, the national currency has weakened again by about 25%.