For the first time in four years, Russia’s financial regulator raised key interest rate, RIAN reports.
It was increased by 0.25% to 7.5% per annum. Elvira Nabiullina, Russian Central Bank’s chairperson, made the step to support the weakening national currency, even though most analysts expected the interest rate would remain unchanged.
It is noteworthy that earlier in the year the Bank of Russia lowered the key interest rate twice. Now, it had to adopt a much different approach. The move is due to the pressure ruble has experienced through anti-Russian sanctions and other microeconomic factors. Earlier, Maxim Oreshkin, Economic Development Minister, promised good prospects by claiming national currency exchange rate would go down to 63-64 rubles per USD (from the current nearly 70). It is possible the Central Bank’s decision will indeed help ruble grow stronger.
Key interest rate is the minimum interest on short-term (one week long) facilities extended by the national regulator to private banks. Therefore, the higher is key interest rate, the more expensive borrowings for businesses and individuals are, and the smaller liquidity in the economy is. A higher interest is thus supporting national currency’s value.
In comparison to developed nations, the Bank of Russia’s interest rate is high. In the US, for instance, it currently is 2%, while in Europe it is 0%. Yet over a longer time, the key interest rate has been decreasing, as ten years ago, it was above 10% per annum – despite economic crisis.