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Russia tries to slow down ruble with sharp interest rate cut

26 mei 2022

10:21

The revival of the ruble, the world’s strongest currency in 2022, will give the central bank room to prop up the economy.

With that, the drastic action that Governor Elvira Nabioellina just after the Russian invasion of Ukraine had to take significantly reversed. Then the central bank doubled the interest rate from 9.5 to 20 percent. The capital controls that have been introduced remain largely intact.

An expensive ruble makes what is still imported cheaper and thus exerts downward pressure on inflation. However, the ruble has recovered to such an extent that it threatens to become a problem: a strong currency is reducing fiscal revenues, translated into lower revenues from oil and gas.

The ruble’s return is a boost for President Putin – many Russians closely monitor the exchange rate – but is largely due to Nabioellina. It has been known for years as capable central bankerwhich has brought stability to Russia’s notoriously volatile economy since taking office in 2013.

Even now, in what the central bank is veiling a “challenging external environment,” it appears to be providing much-needed shock absorbers to the Russian economy. Although it remains relative: investment bank JPMorgan still expects the economy to shrink by 6 percent this year, although that is a lot less pessimistic than previous forecasts.

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