In a bid to halt the rapid depreciation of its ruble currency against the dollar, Russia’s central bank jacked up the interest rates by 350 basis points to 12 per cent at an emergency meeting on Tuesday (Aug 15).

It came as the ruble breached the 100 threshold against the dollar on Monday as Western sanctions and rising military spending due to the invasion of Ukraine took&nbsp;a toll on the economy.

The bank’s response came after President Vladimir Putin's economic adviser Maxim Oreshkin in an op-ed in Russian state-owned Tass agency rebuked the central bank’s “loose monetary policy” for plunging currency and the acceleration of inflation.

Hours after Oreshkin's remarks, the bank announced the emergency meeting, throwing the currency a lifeline.

"Inflationary pressure is building up," the bank said in a statement on Tuesday.

"The pass-through of the rouble's depreciation to prices is gaining momentum and inflation expectations are on the rise."

The central bank said that the decision was aimed at “limiting price stability risks” as “inflationary pressure is building up.”

<h2>Inflation at 4.4%</h2>

The annual inflation stood at an annual 4.4 per cent for the first seven days of August, but the Bank of Russia said that the inflation may edge up further as the current price growth over the last three months is averaging at an annualised 7.6 per cent on a seasonally adjusted basis. Core inflation over the same period rose to 7.1%.

“Steady growth in domestic demand surpassing the capacity to expand output amplifies the underlying inflationary pressure and has an impact on the ruble’s exchange rate dynamics through elevated demand for imports,” the central bank’s board said.

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The central bank said that its decision was aimed at “shaping monetary conditions and overall domestic demand dynamics necessary to bring inflation back to 4 per cent in 2024 and stabilise it close to 4 per cent further on.”

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The last time the bank raised the interest rate was in late February 2022 when Russia invaded Ukraine. That time, it raised the interest rate to 20 per cent. Later on, the bank steadily lowered the cost of borrowing to 7. Per cent % as strong inflation pressure eased in the second half of 2022.

Since its last cut in September 2022, the bank had held rates but steadily increased its hawkish rhetoric, eventually hiking by 100 basis points to 8 per cent at its last scheduled meeting in July. The next rate decision is due on September&nbsp;15.

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In a bid to halt the rapid depreciation of its ruble currency against the dollar, Russia’s central bank jacked up the interest rates by 350 basis points to 12 per cent at an emergency meeting on Tuesday (Aug 15).

In a bid to halt the rapid depreciation of its ruble currency against the dollar, Russia’s central bank jacked up the interest rates by 350 basis points to 12 per cent at an emergency meeting on Tuesday (Aug 15). It came as the ruble breached the 100 threshold against the dollar on Monday as Western sanctions and rising military spending due to the invasion of Ukraine took a toll on the economy. The bank’s response came after President Vladimir Putin's economic adviser Maxim Oreshkin in an op-ed in Russian state-owned Tass agency rebuked the central bank’s “loose monetary policy” for plunging currency and the acceleration of inflation. Hours after Oreshkin's remarks, the bank announced the emergency meeting, throwing the currency a lifeline. "Inflationary pressure is building up," the bank said in a statement on Tuesday. "The pass-through of the rouble's depreciation to prices is gaining momentum and inflation expectations are on the rise." The central bank said that the decision was aimed at “limiting price stability risks” as “inflationary pressure is building up.” Inflation at 4.4% The annual inflation stood at an annual 4.4 per cent for the first seven days of August, but the Bank of Russia said that the inflation may edge up further as the current price growth over the last three months is averaging at an annualised 7.6 per cent on a seasonally adjusted basis. Core inflation over the same period rose to 7.1%. “Steady growth in domestic demand surpassing the capacity to expand output amplifies the underlying inflationary pressure and has an impact on the ruble’s exchange rate dynamics through elevated demand for imports,” the central bank’s board said. Also read | Three ‘Russian spies’ arrested after major UK national security investigation The central bank said that its decision was aimed at “shaping monetary conditions and overall domestic demand dynamics necessary to bring inflation back to 4 per cent in 2024 and stabilise it close to 4 per cent further on.” Also read | Russia-Ukraine war: At least three killed in air strikes on west Ukraine The last time the bank raised the interest rate was in late February 2022 when Russia invaded Ukraine. That time, it raised the interest rate to 20 per cent. Later on, the bank steadily lowered the cost of borrowing to 7. Per cent % as strong inflation pressure eased in the second half of 2022. Since its last cut in September 2022, the bank had held rates but steadily increased its hawkish rhetoric, eventually hiking by 100 basis points to 8 per cent at its last scheduled meeting in July. The next rate decision is due on September 15. WATCH WION LIVE HERE

Russia raises interest rate to 12% as sliding ruble bites hard

The Russian ruble experienced a significant decline following the failed mutiny attempt by Wagner mercenaries last month, causing the currency to breach a key threshold against the U.S. dollar, Bloomberg reported. Kremlin officials have expressed concerns as the ruble traded near 91 per U.S. dollar on Wednesday, extending its 3 per cent fall in the wake of the rebellion.

Ruble's Rollercoaster Ride

The currency's latest drop signifies that it has surpassed the crucial range of 80-90 rubles per U.S. dollar, initially considered optimal by First Russian Deputy Prime Minister Andrey Belousov. The ongoing unrest in Russia, exacerbated by economic headwinds and sanctions resulting from the country's invasion of Ukraine, has contributed to the ruble's poor performance throughout 2023. Investors closely monitor the impact of Western trade restrictions and increased military spending on the Russian economy.

Since the beginning of the year, the ruble has experienced a significant depreciation, with its value against the dollar plummeting by 21 per cent. The diminishing value of the ruble has led many currency holders to seek alternative options, resulting in a rise in retail deposits held in other countries. According to a recent analysis by Bloomberg Economics, retail deposits held in foreign currencies have surged to $43.5 billion from early 2022 through May 2023. Furthermore, 15 regions within Russia have witnessed a substantial increase in demand for alternative currencies, reaching levels as high as 70-80 per cent immediately after the Wagner Group's mutiny attempt, as highlighted by Belousov.

Ruble's Reliance On Other Currencies

Meanwhile, the Kremlin has started relying more heavily on other currencies, particularly China's yuan. In February, Russia's finance ministry revealed that the government had begun selling its $54 billion yuan reserves to compensate for declining energy revenues. This shift in currency reserves emphasizes Russia's attempt to diversify its holdings in response to the economic challenges it faces.

The international community will closely observe how Russia addresses its economic challenges and navigates the complexities arising from ongoing conflicts and global trade restrictions. The fate of the ruble will continue to have significant implications for the Russian economy and regional and global financial markets.

(With Inputs from Bloomberg)

The Russian ruble experienced a significant decline following the failed mutiny attempt by Wagner mercenaries last month, causing the currency to breach a key threshold against the U.

The Russian ruble experienced a significant decline following the failed mutiny attempt by Wagner mercenaries last month, causing the currency to breach a key threshold against the U.S. dollar, Bloomberg reported. Kremlin officials have expressed concerns as the ruble traded near 91 per U.S. dollar on Wednesday, extending its 3 per cent fall in the wake of the rebellion. Ruble's Rollercoaster Ride The currency's latest drop signifies that it has surpassed the crucial range of 80-90 rubles per U.S. dollar, initially considered optimal by First Russian Deputy Prime Minister Andrey Belousov. The ongoing unrest in Russia, exacerbated by economic headwinds and sanctions resulting from the country's invasion of Ukraine, has contributed to the ruble's poor performance throughout 2023. Investors closely monitor the impact of Western trade restrictions and increased military spending on the Russian economy. Since the beginning of the year, the ruble has experienced a significant depreciation, with its value against the dollar plummeting by 21 per cent. The diminishing value of the ruble has led many currency holders to seek alternative options, resulting in a rise in retail deposits held in other countries. According to a recent analysis by Bloomberg Economics, retail deposits held in foreign currencies have surged to $43.5 billion from early 2022 through May 2023. Furthermore, 15 regions within Russia have witnessed a substantial increase in demand for alternative currencies, reaching levels as high as 70-80 per cent immediately after the Wagner Group's mutiny attempt, as highlighted by Belousov. Ruble's Reliance On Other Currencies Meanwhile, the Kremlin has started relying more heavily on other currencies, particularly China's yuan. In February, Russia's finance ministry revealed that the government had begun selling its $54 billion yuan reserves to compensate for declining energy revenues. This shift in currency reserves emphasizes Russia's attempt to diversify its holdings in response to the economic challenges it faces. The international community will closely observe how Russia addresses its economic challenges and navigates the complexities arising from ongoing conflicts and global trade restrictions. The fate of the ruble will continue to have significant implications for the Russian economy and regional and global financial markets. (With Inputs from Bloomberg)

Ruble Retreat: Failed rebellion sends Russian currency into tailspin

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Russia raises interest rate to 12% as sliding ruble bites hard

Ruble Retreat: Failed rebellion sends Russian currency into tailspin