The Russian Central Bank raises its key rate to counter the fall of the ruble and inflation

2023-08-15 14:11:58

By Le Figaro with AFP

Posted 4 hours ago, Updated 32 minutes ago

The key rate was raised from 8.5% to 12%. KIRILL KUDRYAVTSEV / AFP

The Russian currency is at its lowest against the euro and the dollar since March 2022.

The Russian Central Bank (BCR) on Tuesday raised its key rate from 8.5% to 12% to counter the fall of the ruble and curb inflation, judging “possible» a new increase in the event of an acceleration in the rise in prices. “This decision was taken in order to limit the risks to price stability“, justified the BCR in a press release after an emergency meeting, while the ruble is at its lowest against the euro and the dollar since March 2022.

In front of “inflationary pressure (which) continues to rise(4.4% on August 7 over one year), the BCR thus said it considered it necessary to raise its key rate by 3.5 percentage points in order to target “a return of inflation to 4% in 2024“. She also claimed to reserve the right to take “new decisions” in the next weeks. “If inflationary risks increase, an additional increase in the key rate is possible“Warned the BCR, quoted by Russian news agencies. Its leaders, who refused until recent days to any intervention, have thus resolved to raise the key rate, the second in less than a month, after having raised it from 7.5% to 8.5 % on July 21st.

This decision comes the day after criticism came directly from the Kremlin. On Monday, Maxim Orechkine, Vladimir Putin’s economic adviser, castigated “flexible monetary policyfrom the BCR in a column published by the state news agency TASS. Before calling back, as a warning: “A strong ruble is in the interest of the Russian economy“. For several weeks, the free fall of the ruble has been inexorably accompanied by a return of inflation, which adds to the growing cost of the Ukrainian conflict, making many Russians fear for their standard of living, already damaged by a significant price increase last year, linked to the impact of sanctions in response to the assault in Ukraine. One of the main causes of the fall of the national currency is the state of foreign trade. Russia is suffering in particular from the considerable drop in revenues linked to the sale of its hydrocarbons, under the effect of sanctions and the determination of Europeans to get out of their energy dependence.

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Markets reassured

Since the beginning of the year, the Russian currency has in fact lost nearly 25% against the greenback and the euro. Dmitry Polevoï, investment director of Loko Invest in Moscow, told him that he thought that despite the BCR’s decision, “the ruble can remain volatile“in the coming weeks, also referring to Telegram”the political aspect of the dollar over 100 rubles“, an important psychological threshold for the Russian population. On the Moscow Stock Exchange, reassured by the announcement of the BCR, it was necessary to pay 98.2 rubles to obtain a dollar and 107.3 rubles for a euro at 1:16 p.m. local time (10:16 a.m. GMT), after the thresholds of 100 and 110 were exceeded respectively on Monday.

To cope with the rapidly deteriorating situation, the BCR had already announced last week the suspension until the end of the year of its purchases of foreign currencies on the national foreign exchange market, a measure however considered insufficient by several observers. The weakening of the rouble, however, allows the Russian state to replenish its coffers, because for each dollar or euro currently acquired, the government has de facto more rubles to cover its expenses, which have risen sharply due to the conflict in Ukraine.

Pushed to find alternatives to the global financial market from which its banks have been largely banned for more than a year, Russia is also launching a digital ruble on Tuesday. A way, she wants to believe, to limit the impact of international restrictions in the long term. If at this stage it is only a test phase, this dematerialized currency issued directly by the central bank, which is based on blockchain technology (allowing direct transactions on a decentralized register), should be extended to all Russian volunteers from 2025.