Will Raising Interest Rates Help Russia?

central bank of russia

Everyone must have heard that the Russian central bank has raised interest rates once again. Chairman of the Russian central bank, Elvira Nabiullina, announced that her organization would step in again if the ruble continued to cause trouble.

Her words did become reality. Interest rates in Russia have been raised from 10.5 to 17 percent, which is a rate we could only dream of in the Western world. The thought behind the higher interest rates is not as cheerful as you might expect, however.

The Russian government does not really know what to do anymore. The oil price took a big hit in recent months and, logically, this has had a very negative impact on the Russian economy as the country depends for a large part on its export of oil and gas.

What Is Next For Russia?

By raising interest rates the Russian government is hoping to end the crash of its currency, the Russian ruble. The ruble has been in a downward spiral over the last few months and the question is whether this measure will change the trend.

ruble

On the chart above you can see how strong the dollar has performed in comparison to the ruble this year. The charts of other currencies also look very similar versus the ruble and it is clear that the ruble has a lot of catching up to do.

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Comments

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Alex Filonov 5 years ago Contributor's comment

If oil remains below 60, ruble has more downward pressure. Russian Central Bank is not independent. It raised rates, true. But on other hand, it bailed out several banks already and participated in shadow scheme to finance Rosneft: "somebody", bought 625 billion ruble worth of notes (more than $10 billion at current exchange rate), and the next day Central Bank started accepting these notes as collateral. That day (Dec 16) ruble collapsed and only several interventions kept it afloat. More bailouts and shadow financing schemes are on the way.