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“It will only slow the bleeding temporarily.”  The Bank of Russia raises interest rates to 12% after the ruble fell

“It will only slow the bleeding temporarily.” The Bank of Russia raises interest rates to 12% after the ruble fell

So far this year, the ruble has lost 35% of its value as the war in Ukraine rages on, though President Vladimir Putin has insisted Western sanctions are having a limited impact.

Russia’s central bank on Tuesday raised its key interest rate by 3.5 percentage points to 12%, after the ruble hit a 17-month low the day before.

The ruble rose to 98 against the dollar after the announcement, after falling to 102 on Monday.

The Bank of Russia said its decision – taken at an emergency meeting on Monday – was “aimed at reducing risks to price stability”.

“The continuous growth of domestic demand, which exceeds the ability to expand production, amplifies the underlying inflationary pressure and affects the dynamics of the ruble exchange rate,” the central bank said in a statement issued by the Central Bank.

“The repercussions of the ruble’s depreciation on prices are getting stronger and inflation expectations are rising,” he added.

The central bank said the measure aims to bring down inflation to 4% next year. Annual consumer price inflation in Russia was 4.3% in July.

So far this year, the ruble has lost 35% of its value as the war in Ukraine rages on, though President Vladimir Putin has insisted Western sanctions are having a limited impact.

US Treasury Secretary Janet Yellen, speaking to Erin Burnett on Monday, said the ruble’s decline reflects the fact that sanctions, as well as war, are “draining the Russian economy.”

Analysts doubt that the emergency action of the Russian Central Bank can provide a permanent solution to the currency problems.

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“Today’s rate hike will only temporarily slow the bleeding. The ruble depreciation is the result of several factors working against Russia at the same time,” Liam Beach, chief emerging markets economist at Capital Economics, wrote in a note.

He added that these factors include low energy prices and export revenues, as well as the difficulty in attracting foreign capital due to the sanctions.

The Russian currency collapsed immediately after the massive invasion of its neighbor in February 2022, and fell to 136 against the dollar in March 2022.