Russia's central bank took swift action today, increasing its key interest rate by 350 basis points from 8.5 percent to 12 percent. This urgent move aimed to counteract the recent decline of the ruble, which was triggered by the Kremlin's call for stricter monetary policy.
The decision to raise rates came following an emergency meeting convened as the ruble plummeted below the 100 mark against the dollar. The currency's slide was exacerbated by the Western sanctions affecting Russia's trade balance and the surge in military expenditures.
Maxim Oreskin, President Vladimir Putin's economic adviser, criticized the central bank for its lenient monetary policy. Just hours after Oreskin's remarks, the Central Bank announced an emergency meeting, resulting in the rate hike. Today, the Russian Central Bank released a statement, acknowledging, "Inflationary pressures are increasing." The bank further stated that the move was aimed at mitigating risks to price stability, as the ruble's depreciation starts to impact prices, and inflation expectations rise.
While this rate increase managed to arrest the ruble's downward trajectory, analysts are divided on the long-term efficacy of the central bank's decision. Many believe that its effects may be limited in duration.