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Russia raises interest rates again to contain the fall of the ruble

The Central Bank of Russia (BCR) announced this Friday that it will raise its official interest rate from 13% to 15%, its fourth consecutive increase in just over three months, to counter inflation and the weakening of the ruble, which remains in difficulties despite their efforts. "Current inflationary pressures have increased significantly to a level higher than the Bank of Russia's expectations," the BCR said in a statement.

"Therefore, it is necessary to tighten monetary policy even further," he justified, with the objective of "bringing" inflation, currently +6%, towards "the objective (...) of +4% in 2024." This increase is greater than expected by observers, who expected an increase of only one point.
The announcement comes just one day after the approval of budgets that plan a 68% increase in military spending in 2024. “The budget has been an important factor in our decision,” the president of the BCR admitted at a press conference. , Elvira Nabiulina.

The war in Ukraine weighs heavily on Russian finances and the economy. Under the effect of sanctions, the weakening of the ruble in recent months has been accompanied by a return of inflation, which has made many Russians fear for their purchasing power. The cause, in particular, is the considerable drop in income linked to the sale of hydrocarbons, under the weight of sanctions and the declared determination of Europeans to end their energy dependence on Moscow.

The BCR had already raised its key interest rate, the first time in July (from 7.5% to 8.5%), then in mid-August, urgently, to 12%, to deal with the weakening of the ruble, and finally in mid-September up to 13%.

But this did not have the expected effect: the ruble remains weak against the euro and the dollar. On Friday, 93.3 rubles were needed to purchase a dollar and 98.6 for a euro, levels almost as low as those in March 2022, just after the invasion of Ukraine.

In this gloomy context, the BCR had already said that it expected a slowdown in growth in the second half of 2023. However, it has also noted "more rapid development" than it had predicted in September. The monetary institution has also adjusted upwards its inflation forecasts for 2023, "between 7 and 7.5%." "The peak of inflation, in our opinion, will be reached in the spring of next year," Nabiulina told reporters.