Russia has increased interest rates to 12%, following the rouble’s decline to its lowest level in 16 months.
On Monday, the rouble crossed the 100-per-dollar mark, causing Russia’s central bank to call an emergency meeting.
The Bank of Russia announced that it had increased interest rates from 8.5% to combat inflation, which had reached 4.4% in August.
Due to faster import growth than export growth and rising military spending for the Ukraine war, pressure has been building on the Russian economy.
“Steady growth in domestic demand surpassing the capacity to expand output amplifies the underlying inflationary pressure and has impact on the rouble’s exchange rate dynamics through elevated demand for imports,” the Bank of Russia said in a statement.
The bank stated that its goal was to reduce inflation to 4% by 2022 as “inflationary pressure” was building.
Following its invasion of Ukraine in February 2022, Russia has been the target of sanctions from Western nations.
After the war first started, its currency, the rouble, crashed, but was supported by capital controls and oil and gas exports.
However, since the invasion of Ukraine, the rouble has lost about a quarter of its value relative to the dollar, and this week, more than 100 roubles were required to purchase one US dollar.
The rouble made a small comeback on Tuesday, but it still has a long way to go before it is as strong as it was in 2022.
The aggressive increase in interest rates by the Bank of Russia is not new. The bank increased interest rates from 9.5% to 20% during the initial Russian invasion of Ukraine but soon started lowering them.
Source-BBC
