The Russian Central Bank raises interest rates in an effort to support the weakening ruble

The Russian central bank increased its benchmark interest rate by 3.5% on Tuesday in an effort to combat inflation and support the ruble, which had fallen to its lowest level since the beginning of the country’s conflict with Ukraine.

The decision was made after the bank’s board of directors held an emergency meeting a day earlier as the ruble fell. Moscow’s military expenditure is rising while Western sanctions put pressure on its oil exports, causing the decline.

The value of the Russian ruble fell to 101 rubles to the dollar on Monday, having lost more than a third of that amount since the year’s beginning and reaching its lowest point in almost 17 months. After the central bank announced the meeting, it had marginally recovered.

 

Maksim Oreshkin, the economic advisor to President Vladimir Putin, attributed the weak currency to “loose monetary policy” in an opinion piece published on Monday. He added that the central bank has “all the tools necessary” to resolve the situation and that he expects normalization to occur soon.

 

The central bank is attempting to combat price hikes as a result of Russia’s increased imports and decreased exports, particularly of oil and natural gas, as well as rising military expenditure and the effects of sanctions. A reduced trade surplus results from more imports and decreased exports, which often puts pressure on a nation’s currency.

 

The bank also increased interest rates significantly last month by 1%, citing the likelihood that inflation would continue to rise and the danger that the collapse in the ruble increases.

 

The ruble fell as low as 130 to the dollar in February 2022 when Western nations sanctioned Russia for the invasion of Ukraine, but capital restrictions implemented by the state bank helped to maintain its value.