16th December, 2014: Russia’s central bank made a drastic interest rate move overnight, raising its key rate from 10.5% to 17%.
The bank said the move was to try to ease the rouble’s recent fall in value.
The rouble has lost almost 50% against the US dollar this year as falling oil prices and Western sanctions continue to weigh on
the country’s economy.
Before the move, the dollar bought 67 roubles. The rate rise moved it up to 58 against the dollar, although it has since slipped back to 62.
Russia only last week raised rates by 1%, a move that had little impact. On Monday the rouble fell to a new low, prompted by fears the US was considering a fresh set of sanctions against the country for its support for separatists in Ukraine.
The 60 mark is considered a “psychological barrier” for Russia’s national currency, says the BBC’s Moscow correspondent, Steve Rosenberg.
Most analysts thought the move would work to curb inflation, which is heading for double figures.
But it could cause problems in other areas. Neil Shearing, chief emerging markets economist for Capital Economics, said the rate rise “could prove to be a turning point in the 2014 rouble crisis”.
“The price, however, will be a further tightening of credit conditions for households and businesses and a deeper downturn in the real economy in 2015,” he said.
Russia’s central bank has tried unsuccessfully to stabilise the currency, buying roubles in the markets.
It has spent more than $70bn (£44.7bn) supporting the rouble since the start of the year.
Source: BBC
