Central bank considers raising interest rates due to weak ruble

Against the background of the ruble depreciating at an ever-increasing rate, the central bank in Russia is considering raising interest rates again. Since inflation may exceed the target, everything will be done to stabilize prices again, said central bank advisor Kirill Tremasov.

“There is practically no doubt that the board of the central bank will discuss the question of a further increase in the key interest rate at the meeting in December.” The interest rate is already at 21 percent, its highest level since 2003. The ruble is currently testing one low after another on the stock market.

On Wednesday, the dollar approached the 115 ruble mark, the euro already cost more than 120 rubles on the Forex exchange. The Russian national currency has lost almost a quarter of its value since the beginning of August. On Thursday, the price rose only slightly due to the central bank’s foreign currency purchases. Western sanctions, but also increasing political uncertainty, reinforced by the launch of the Oreshnik medium-range missile ordered by Kremlin chief Vladimir Putin, are putting pressure on the ruble.

Weak ruble fuels inflation

The weakness in exchange rates is likely to further fuel inflation in Russia. According to the business newspaper Kommersant, producers of electronic household appliances have already informed stores of a 10 percent price increase. Officially, the central bank continues to forecast inflation of a maximum of 8.5 percent this year. However, many consumers in the country complain about significantly higher price increases for food and everyday goods.

Even President Vladimir Putin felt compelled to comment in view of the development of the ruble and inflation: There is no reason to panic, the situation is under control, he assured at a press conference in the Kazakh capital Astana.

The interest rate increase is intended to curb inflation. The deputy head of the major state bank VTB, Dmitri Pyanov, expects the key interest rate to rise to 23 percent. The high interest rates are particularly a problem for companies in Russia. However, the country’s arms industry, which is prospering thanks to government contracts, is likely to continue to grow. (sda/awp/dpa)

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Against the background of the ruble depreciating at an ever-increasing rate, the central bank in Russia is considering raising interest rates again. Since inflation may exceed the target, everything will be done to stabilize prices again, said central bank advisor Kirill Tremasov.