RUSSIA’S CENTRAL BANK MAKES HUGE RATE HIKE TO PROP UP RUBLE
Currency lost more than a third of its value since the beginning of the year
Russia's central bank made a big interest rate hike Tuesday, an emergency move designed to fight inflation and strengthen the ruble after the country's currency reached its lowest value since early in the war with Ukraine.
The ruble has lost more than a third of its value since the beginning of the year as Moscow increases military spending and Western sanctions weigh on its income from energy shipments. The flagging currency does not mean the Russian economy is in freefall — though it is facing challenges, including rising prices for households and businesses, according to analysts who study Russia.
A lower exchange rate allows Moscow to transfer the dollars it earns from selling oil and natural gas into more rubles to pay pensions and run government agencies. But the drop in value went a bit too far, and officials are now tightening it up, analysts say.
While over time sanctions will erode long-term economic growth,
the recently weaker ruble “does not imply an underlying economic crisis, it doesn't suggest Russia is about to fall off a cliff,” said Chris Weafer, CEO of Macro-Advisory Partners.
The central bank hiked its key rate 3.5 percentage points to 12 percent after announcing a meeting of its board of directors a day earlier as the ruble declined.
The Russian currency passed 101 rubles to the dollar Monday, hitting
the lowest level in almost 17 months. The ruble strengthened after the rate hike announcement but has since given up some of those gains to hit about 98 to the dollar.
The central bank says demand for goods has exceeded the country's ability to expand output, increasing inflation and affecting “the ruble's exchange rate dynamics through elevated demand for imports.”