Interest Rates Rise in Russia

12 Dec , 2014

In an effort to tackle inflation, Russia’s central bank has raised its interest rate to 10.5%, just six weeks after it raised the rate to 9.5% from 8%.

The bank's official website has also stated that it won’t stop there, confirming that it would continue raising the rate "in case of further aggravation of inflation risks".

A weak rouble and a ban on western food imports have kept inflation high.

The hope is that higher interest rates will cut consumption and stop prices rising so fast, but the problem is that higher inflation rates will slow the economic growth. As we know from the situation in the UK, slow economic growth is not what you want, particularly when the country is on the brink of recession.

The rouble has continued to slide following the decision, and has fallen to a new low against the dollar.

The rate hike comes a day after the bank admitted it had intervened to support the rouble in foreign currency markets last week, spending a total of $4.53bn (£2.9bn). It has spent more than $70bn supporting the rouble since the start of the year.

The bad news continues to come, as The Bank of Russia admitted on Thursday that GDP growth would be weak during 2015-16, as consumer activity weakened.

Further reading...

Russia economy | beyondbrics - Blogs - Financial Times

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