The central bank raised rates from 8.5% to 12%, the second consecutive increase and the sharpest since Russia’s invasion of Ukraine nearly 18 months ago. The ruble is in the top three in developing countries this year, with a loss of more than 22% against the dollar.
After the decision to raise the key rate of the Central Bank, the ruble strengthened against the dollar to 95.5 rubles. However, then the ruble lost all of its morning growth and began to decline: to 99 rubles per dollar.
Central bank chief Elvira Nabiullina has repeatedly resorted to rate hikes in the past in response to ruble collapses. Now this decision was made after Vladimir Putin’s economic adviser Maxim Oreshkin said that the “soft” policy of the central bank was to blame for the devaluation.
Oreshkin chastised the central bank, accusing it of allowing faster credit growth to flood the economy with money, and called for a “strong ruble” to help Russia adjust.
The collapse of the ruble looks like a threat to social stability, which makes Russia look vulnerable at a time when the war against Ukraine continues and international sanctions hit trade.
Although Oreshkin said that the Bank of Russia “has all the necessary tools to normalize the situation in the near future,” its options are limited, apart from maintaining high rates and tightening capital controls.
With much of the central bank’s reserves already frozen by sanctions, politicians will be reluctant to intervene in the foreign exchange market with direct intervention if the ruble comes under pressure again.
The collapse of the ruble
On August 14, the Russian ruble broke through the psychologically important level of 100 per dollar for the first time since March last year.
The Russian currency has almost halved in value from last year’s peak on the back of increased government spending, falling energy revenues and Russians’ desire to deposit funds in foreign accounts.
The negative trend has not changed even after Russian Urals oil last month exceeded the price limit set by the G7 countries.
2023-08-15 08:09:47
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