The ruble is too strong: Russia cuts interest rates again

With the rate cut, the bank also hopes to support the Russian economy hurt by Western sanctions.

ruble appreciation

The central bank was supposed to hold a rate meeting in about two weeks, but announced an emergency meeting on Wednesday. The interest rate in Russia fell from 14 to 11 percent. The bank also said that the door is open to further cuts.

In the explanatory notes, policymakers did not mention the ruble much. They mentioned that the appreciation of the currency has contributed to the slowdown in inflation.

At the end of February, interest rates in Russia more than doubled, to 20 percent, to counteract the falling ruble and rising inflation in the country. Then the ruble lost up to 40 percent of its value due to Western sanctions against Russia after the invasion of Ukraine on February 24.

Rising oil and gas prices

Since then, the Russian currency has appreciated significantly again, reaching its highest level since 2018 against the dollar. This is mainly due to Russia’s restrictions on capital outflows from the country and high oil and gas prices.

Because Russian oil and gas exports are largely exempt from sanctions, billions of dollars and euros flow into the country every week.

Penalties escaped

Due to a decrease in Russian imports and restrictions on buying foreign products and sending money abroad, the demand for hard currencies such as the dollar almost dried up in Russia, causing the ruble to appreciate against the US currency.

President Vladimir Putin also cited the ruble’s rebound as a sign that the country had escaped unprecedented Western sanctions.

support the economy

The central bank also wants to give the economy, which is heading for a sharp contraction due to sanctions, a boost by lowering borrowing costs.

“External conditions for the Russian economy remain difficult, which significantly limits economic activity,” the policymakers said. The bank said that risks to the stability of the country’s financial system have receded somewhat.