Russia cuts interest rates as ruble settles despite sanctions

Russia’s central bank has managed to stabilize key aspects of the economy with tight controls, artificially supporting the ruble to allow it to rebound to levels seen before the invasion of Ukraine even as the West accumulates new penalties.

That became evident when Russia’s central bank said on Friday it was cutting its benchmark interest rate and said more rate cuts could be on the way. The ruling says it believes tight capital controls and other tough measures are stabilizing Russia’s currency and financial system despite heavy pressure from US and EU sanctions.

The bank cut its benchmark rate from 20% to 17%, effective Monday. The interest rate cut reflects “the shift in the balance of risks” between inflation, economic growth and banking system stability, the bank said.

He raised the rate by 9.5% on February 28, four days after the invasion, to support the falling ruble exchange rate. A currency crash would worsen already high inflation for Russian buyers by skyrocketing the cost of imported goods.

The ruble fell from 79 to the dollar the day before the invasion to 139 to the dollar. But it has since recovered to around 77 rubles to the dollar in very limited trading, bolstered by drastic measures such as forcing companies to exchange 80% foreign currency for rubles and preventing foreign investors from selling their holdings in rubles.

Russia has pressed buyers of its oil and gas to pay in rubles, with little success, although Hungarian Prime Minister Viktor Orban has expressed he would be ready.

The bank said weekly price data showed “a substantial slowdown in the pace of price increases, partly due to the dynamics of the ruble’s exchange rate.” The official inflation figure for February was 9.2%.

The bank’s statement “foresees the possibility of further rate cuts at upcoming meetings.”

Western sanctions have dealt a severe blow to the economy, cutting off major banks from international transactions, freezing central bank reserves and driving many Western companies out of business in Russia.

Since an initial round of sanctions over Russia’s annexation of Ukraine’s Crimea region in 2014, the Kremlin has tried to protect its economy from financial sanctions by encouraging businesses to source locally and banning food imports from Europe to encourage local production.

About Vicki Davis

Check Also

The Central Bank of Nigeria sold currencies worth $4.86 billion to authorized dealers in the first quarter of 2022

The Central Bank of Nigeria sold $4.86 billion worth of foreign currency to government dealers …