Russia's central bank hikes interest rates to halt rouble's slide

NEW DELHI: Russia's central bank on Tuesday hiked interest rates by 3.5 per cent, in an emergency move aimed at halting the rouble's recent slide after it fell to its weakest point in almost 17 months, the media reported.

The decision to bring the key rate to 12 per cent was announced after an extraordinary meeting of the bank’s board of directors, called after the rouble plunged past the psychologically key level of 100 to the dollar on Monday morning, 'The Guardian' reported.

The central bank said it had taken the decision to "limit risks to price stability" after several inflation indicators rose over 7 per cent in the past three months, a significant deviation from its target of 4 per cent.

Analysts said the move appeared to "underwhelm" markets, with the currency falling in value on Tuesday morning, and cautioned that financial stability would be hard to achieve while western economic sanctions on Russia remain in place, The Guardian reported.

"With conflict in Ukraine entrenched, the sanctions grip tight and an ongoing voracious demand for new weapons, there is no easy escape from the economic fallout of the invasion," said Susannah Streeter, the head of money markets at investment platform Hargreaves Lansdown.

The rouble has weakened by 26 per cent against the dollar this year as a result of a collapse in export revenues and growing military spending, making it the third worst-performing global currency in 2023, The Guardian reported.

The decline has led to calls from senior Kremlin officials for higher borrowing costs.

"As long as the war continues it just gets worse for Russia, the Russian economy and the rouble," said Timothy Ash, a strategist at the investment firm Bluebay Asset Management. “Hiking policy rates won't solve anything - they might temporarily slow the pace of depreciation of the rouble at the price of slower real GDP growth - unless the core problem, the war and sanctions are resolved," 'The Guardian' reported.