Russia’s central bank lowers interest rates again to halt ruble advance

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The Russian central bank lowered its key rate for the third consecutive time on Thursday. The interest rate in Russia fell from 14 to 11%. The interest rate hike came after an emergency central bank meeting aimed at slowing the rouble’s strong advance.

With lower interest rates, the bank also hopes to support Russia’s economy hit by Western sanctions. The central bank was supposed to hold an interest rate meeting in about two weeks, but announced an emergency meeting on Wednesday.

The bank said at the meeting that the door was open for further interest rate cuts. In an explanation, policymakers said little about the ruble. They reported that the appreciation of the currency had contributed to a slowdown in inflation.

By the end of February, interest rates in Russia had more than doubled to 20%. This was done to counter the fall of the ruble and high inflation in the country. The ruble then lost up to 40% of its value due to Western sanctions against Russia after the February 24 invasion of Ukraine.

The Russian currency has risen sharply in value recently

The Russian currency has since 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 rising oil and gas prices.

Because Russia’s oil and gas exports are largely free of sanctions, billions of dollars and euros flow into the country every week. Due to declining Russian imports and restrictions on buying foreign goods and sending money abroad, demand for hard currencies like the dollar has all but dried up in Russia, leading to an appreciation of the ruble against the US currency. .

The central bank also wants to give a boost to the economy, which is headed for a sharp contraction due to the sanctions, by lowering interest rates. A lower interest rate generally encourages people to spend more because saving becomes less rewarding.

“External conditions for the Russian economy are still difficult, significantly limiting economic activity,” the policymakers said. Risks to the stability of the country’s financial system have diminished somewhat, according to the bank.

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