In an urgent response to address escalating price inflation and the recent sharp depreciation of the ruble, Russia’s central bank executed a substantial interest rate hike of over 40% on Tuesday. This move followed the ruble’s fall to a 16-month low, significantly impairing the currency’s purchasing power.
In an unscheduled meeting of the board of directors, the central bank decided to raise the main interest rate by 350 basis points, pushing it up to 12%. The primary objective of this decisive action was to mitigate the escalating risks to price stability. The move was prompted by the substantial rise in annual inflation, which reached 4.4% in July and maintained an average of 7.6% over the past three months. These figures were disclosed in a news release by the Bank of Russia.
The bank also noted that its core inflation indicator, which excludes the more volatile price components such as fuel and food, had increased to 7.1%.
Attributing the inflationary pressures to robust domestic demand that surpassed the economy’s productive capacity, the bank underscored how this factor exacerbated the underlying inflation trends. This excessive demand had the additional effect of intensifying import demand, thereby contributing to the depreciation of the ruble.
The central bank’s significant interest rate hike aimed to stabilize the economy by reigning in inflation and addressing the currency’s decline. This decision reflected the bank’s commitment to addressing the economic challenges posed by the intersection of inflation and currency devaluation.