Russia raises interest rates for first time since 2014 currency crisis

Russia raises interest rates for first time since 2014 currency crisis

Russia’s central bank raised its benchmark lending rate 0.25 percentage points to 7.50 — its first raise since a currency crisis in December 2014 — as emerging market turmoil, worries over US sanctions, and political pressure battered the rouble.

The central bank said in a statement that it felt moved to act after inflation rose to 3.1 per cent in August, above its predictions. The central bank expects inflation to reach 5.5 per cent next year before reverting to its baseline target of 4 per cent in 2020.

Another factor affecting the decision was higher payouts on rouble-denominated government bonds, or OFZs, after foreigners worried about US sanctions sold them off en masse, the central bank said.

“Monetary conditions have somewhat tightened under the influence of external factors,” the central bank added, leaving the door open to further rises based on inflation and “risks from external threats and the financial markets’ reaction to them.”

The rouble rallied on the announcement, erasing a daily decline against the dollar ahead of the data to trade as much as 0.8 per cent stronger at Rbs67.64.

Russia’s currency sank below Rbs70 to the dollar this week for the first time in two years after senior government officials called for a rate cut when central bank governor Elvira Nabiullina harshened her rhetoric. The currency recovered slightly on Thursday after Turkey’s central bank, also under political pressure, raised rates higher than the market had expected.

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