Russian Interest Rate Hike

September 15, 2023

Faced with consumer price inflation that in between May and August accelerated to a 9.9% annualized pace, officials at the Central Bank of Russia felt compelled to lift its interest rate by another full percentage point to 13.0%. This increase comes on top of hikes of 100 bps in July and 350 bps in August. Putin’s reckless and Quixotic war to restore a Russian Empire has put the countries central bank in a very difficult spot, leading to wide policy swings. The key rate was cut in 2020 by 200 basis points to a pandemic low of 4.25%. As inflation picked up subsequently, the central bank interest rate doubled during 2021 and then catapulted 1,150 basis points to 20% in two moves at the start of the war in February 2022. To prove that western sanctions weren’t working and to forestall a deeper economic downturn, the key interest rate was slashed by 1,250 basis points (12.5 percentage points) between April and September of last year. In the past three months, almost half of that cut has been reversed, and the net change in this roller-coaster rise since Russia first invaded Ukraine has a rise of 450 basis points. A statement released today attributes the inflation to ruble weakness and an imbalance of demand and supply related to the war. “The Bank of Russia will consider the necessity of further key rate increase at its upcoming meetings.”

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



Comments are closed.