Metropolis Desk-
After the rouble hit its lowest value in 16 months, Russia increased interest rates to 12%.
On Monday, the exchange rate went beyond 100 to the dollar, causing Russia’s central bank to call an urgent meeting.
To combat inflation, which reached 4.4 percent in August, the Bank of Russia announced that interest rates would be increased from their current level of 8.5 percent.
Due to quicker import growth than export growth and escalating military spending for the Ukraine war, pressure has been building on the Russian economy.
“Steady growth in domestic demand exceeding the capacity to increase output amplifies the underlying inflationary pressure and has an impact on the rouble’s exchange rate dynamics,” the Bank of Russia stated in a statement.
The bank claimed that although “inflationary pressure” was increasing, its goal was to reduce inflation—the rate at which prices rise—to 4 percent by 2024. Western nations have imposed sanctions on Russia as a result of its invasion of Ukraine in February 2022.
After the war initially started, the rouble fell but was later supported by capital controls and oil and gas exports.
Since the invasion of Ukraine, it has, however, lost approximately a quarter of its value relative to the US dollar, and this week, more than 100 roubles were required to purchase one dollar.
The currency somewhat strengthened on Tuesday to 98 roubles to the dollar, although it is still far weaker than it was a year ago.
The Bank of Russia has a history of aggressively raising interest rates. The bank increased interest rates from 9.5 percent to 20 percent when Russia first attacked Ukraine, but soon started lowering them.
According to Capital Economics senior emerging markets economist Liam Peach, the most recent boost will only be temporarily felt. Sanctions will make it difficult for Russia to draw in the capital, he claimed.
Due to analysts, one of the main causes of the rouble’s depreciation was the impact of Western sanctions on Russia’s economy and commerce.
Since the start of the war, many EU nations that relied on Russian oil and gas have vowed to gradually reduce their imports and find substitute supplies.
Russia has also been cut off from Swift, a global payment system used by hundreds of financial institutions, as part of an EU proposal to reduce the amount it can make from oil exports.
Source- BBC News
