Due to Ruble Collapse... Russia Raises Key Interest Rate by 4.5%P in One Month

Sharp Decline of Ruble Due to Ukraine Invasion and Western Sanctions
Russian Central Bank Announces Further Rate Hike

Russia, whose ruble value is plummeting due to Western sanctions following the invasion of Ukraine, has raised its benchmark interest rate twice within a month.

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On the 15th (local time), the Bank of Russia held an emergency meeting in the morning and announced in a statement that it had decided to raise the benchmark interest rate by 3.5 percentage points from 8.5% to 12%. This is the second rate hike within a month, following last month's increase from 7.5% to 8.5%.

The Bank of Russia explained, "The depreciation of the ruble is being transmitted to prices, and inflation expectations are rising," adding, "This decision is aimed at controlling price risks."

The ruble's value exceeded 100 rubles per dollar for the first time since March last year, one month after the invasion of Ukraine, reaching 102 rubles per dollar the previous day. As the ruble's value fell, the Kremlin urged a tight monetary policy, prompting the Bank of Russia to raise the benchmark interest rate.

Due to the ruble's depreciation, inflation in Russia is soaring. Over the past three months, Russia's inflation rate has been 7.6%, surpassing the government's target of 4%. The Bank of Russia forecasted, "Considering the current monetary policy, the annual inflation rate is expected to return to around 4% in 2024."

However, the ruble's weakness continues even after this decision. Immediately after the Bank of Russia's emergency meeting decision, the ruble rebounded, closing at 97 rubles per dollar, but in the afternoon of the day the rate hike was announced, it again exceeded 98 rubles per dollar. The Russian monetary authorities mentioned additional tightening in a further statement, saying, "If inflation risks intensify, further increases in the benchmark interest rate are possible."

Before Russia invaded Ukraine in February last year, the ruble was trading at 75 rubles per dollar. However, as Western sanctions intensified, the ruble's value sharply dropped, exceeding 120 rubles per dollar in March last year. Subsequently, measures such as banning currency exchange by the Russian government, restricting foreign stock sales, and mandating energy companies to hold rubles seemed to stabilize the ruble's value, but increased military spending and Western sanctions on Russian crude oil led to a growing fiscal deficit, causing the ruble to fall about 30% again this year.

This content was produced with the assistance of AI translation services.