Russia’s Central Bank has raised the country’s key interest rate by 3.5 percentage points to 12 percent in response to the tumbling ruble. The Russian currency has lost nearly a quarter of its value against the US dollar since President Vladimir Putin began the invasion of Ukraine in February 2022. This increase in interest rates comes as the country’s economy has been severely impacted by Western sanctions, inflation, and a labor shortage caused by men fleeing abroad to avoid military conscription.
Ruble Hits Lowest Point in 17 Months
The Russian ruble has steadily decreased against major world currencies in recent weeks, reaching its lowest point in 17 months. The decline in the ruble’s value is a result of several factors:
- Western sanctions
- Acute labor shortage
- Decreased trade balance
- Soaring military spending
- Political instability
Central Bank Raises Interest Rates
In response to these economic challenges, the Central Bank has raised the country’s key interest rate to 12 percent. The bank attributed this move to “inflationary pressure” caused by “steady growth in domestic demand surpassing the capacity to expand output.”
Impact on Russian Economy
The weakening ruble has had a significant impact on the Russian economy:
- Budget deficit
- Labor shortage
- Capital outflow
- Decreased purchasing power
- Slowed economic growth
Russian Public Feels the Effects
The depreciation of the ruble is politically important as it directly affects Russian households. The decline in value hits citizens’ real incomes and purchasing power. The recent events, such as capital outflow and expropriation of Western companies, have further contributed to the weakening of the ruble.
Economists have varying opinions on the situation:
- Sergei Guriev: The ruble’s fall is noticeable to Russian citizens and will have a negative impact on the economy.
- Aleksashenko: Mistrust in Putin’s economic policy has caused the ruble’s devaluation.
- Oleg Itskhoki: The current depreciation is unlikely to trigger a crisis unless it leads to panic and a mass switch from rubles to dollars.
Previous Emergency Measures
The Central Bank has taken emergency measures during previous crises:
- At the end of February 2022: Key rate raised to 20%
- In 2014: Key rate raised to 17% following annexation of Crimea and Western sanctions
- These rate hikes are among the largest announced by the Central Bank
Several other stories are currently making headlines:
- Moscow court convicts retired Russian military intelligence colonel for discrediting the military
- Russia attacks the western region of Lviv in Ukraine with cruise missiles
- Three suspected spies for Russia charged in the UK
The Russian economy continues to face significant challenges as the ruble’s value falls and the country deals with sanctions, inflation, and labor shortages. The Central Bank’s decision to raise interest rates aims to address inflationary pressures but could have further negative effects on the economy. The impact on Russian citizens and the potential for further depreciation of the ruble remain key concerns.
Understanding the Russia-Ukraine Conflict
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