Russia's central bank hiked its key interest rate by 350 basis points to 12% on Tuesday, an emergency move to try and halt the rouble's recent slide after a public call from the Kremlin for tighter monetary policy.
The rouble pared gains after the decision to stand 0.5% weaker at 98.16 by 1056 GMT, but still significantly above lows near 102 on Monday which had not been hit since the early weeks after Russia invaded Ukraine.
"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."In its original statement, the bank removed its usual hawkish guidance that it would consider future rate hikes, leading some analysts to speculate that interest rates had peaked.
The Kremlin's public criticism of her monetary policy adds further pressure as Russia heads towards a presidential election in March 2024, with consumers battling rising prices for basic goods.A vendor counts Russian rouble banknotes at a market in Saint Petersburg, Russia July 9, 2023. REUTERS/Anton Vaganov
Andrei Melaschenko, economist at Renaissance Capital in Moscow, said the bank was right to react to inflation risks, but that the meeting, being announced so soon after Kremlin criticism, raised questions about the bank's independence. Russia saw double-digit inflation in 2022 and after a deceleration in the spring of 2023 due to that high base effect, annual inflation is now above the central bank's 4% target once more and quickening.
The bank, which blames the rouble's slide on Russia's shrinking current account surplus - down 85% year-on-year in January-July - has already tried to limit the rouble's decline.
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