Following the rouble’s decline to its lowest level in 16 months, Russia raised interest rates to 12%.
On Monday, the ruble crossed the 100-dollar mark, causing Russia’s central bank to call an urgent meeting.
The Bank of Russia said that it had increased interest rates from their previous level of 8.5% in order to combat August’s 4.4% inflation rate.
The Russian economy is under increasing pressure as a result of increased imports that are outpacing exports and escalating military expenditures related to the conflict in Ukraine.
The Bank of Russia stated in a statement that “steady growth in domestic demand exceeding the capacity to expand output amplifies the underlying inflationary pressure and has impact on the rouble’s exchange rate dynamics through elevated demand for imports.”
The bank claimed that although “inflationary pressure” was increasing, its goal was to reduce inflation—the rate at which prices rise—to 4% by 2024.
Western nations have imposed sanctions on Russia as a result of its invasion of Ukraine in February 2022.
After the war initially started, the rouble fell, but was later supported by capital controls and oil and gas exports.
Since the invasion of Ukraine, it has, however, lost approximately a quarter of its value relative to the US dollar, and this week, more than 100 roubles were required to purchase one dollar.
The currency somewhat strengthened on Tuesday to 98 roubles to the dollar, although it is still far weaker than it was a year ago.
The Bank of Russia has a history of aggressively raising interest rates. The bank increased interest rates from 9.5% to 20% when Russia first attacked Ukraine, but soon started lowering them.
According to Capital Economics’ senior emerging markets economist Liam Peach, the most recent boost will only be temporarily felt.
Sanctions will make it difficult for Russia to draw in capital, he claimed.
According to analysts, one of the main causes of the rouble’s depreciation was the impact of Western sanctions on Russia’s economy and commerce.
Since the start of the war, many EU nations that relied on Russian oil and gas have vowed to gradually reduce their imports and find substitute supplies.
Russia has also been cut off from Swift, a global payment system used by hundreds of financial institutions, as part of an EU proposal to reduce the amount it can make from oil exports.