Huge interest rate hike in Russia as central bank tries to prop up falling ruble

Woman driving past currency exchange office in Moscow
A woman drives past a currency exchange office in Moscow on Monday. Russia’s ruble has plunged in value against the dollar.
(Alexander Zemlianichenko / Associated Press)
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Russia’s central bank Tuesday made a huge interest rate hike of 3.5 percentage points, an emergency move designed to fight inflation and strengthen the ruble after the country’s currency reached its lowest value since early in the war with Ukraine.

The ruble has lost more than a third of its value since the beginning of the year as Moscow increases military spending and Western sanctions weigh on its income from energy shipments. The flagging currency does not mean the Russian economy is in freefall — though it is facing challenges, including rising prices for households and businesses, according to analysts who study Russia.

A depreciated ruble allows Moscow to convert the dollars it earns from selling oil and natural gas into more rubles to pay pensions and run government agencies. But the drop in value went a bit too far, and officials are now tightening it up, analysts say.


While over time sanctions will erode long-term economic growth, the recently weaker ruble “does not imply an underlying economic crisis — it doesn’t suggest Russia is about to fall off a cliff,” said Chris Weafer, chief executive of Macro-Advisory Partners.

The central bank hiked its key rate by 3.5 percentage points to 12% after announcing a meeting of its board of directors a day earlier as the ruble declined.

The Russian currency had passed 101 rubles to the dollar Monday, losing more than a third of its value since the beginning of the year and hitting its lowest level in almost 17 months. On Tuesday, the ruble strengthened after the rate hike announcement but then gave up some of those gains to hit about 98 to the dollar.

Russia has weathered sweeping economic sanctions over the Ukraine war better than many expected, but the months ahead could pose a tougher test.

March 13, 2023

The central bank says demand has exceeded the country’s ability to expand economic output, increasing inflation and affecting “the ruble’s exchange rate dynamics through elevated demand for imports.”

Until now, the ruble’s decline suited the government because it increased the amount of rubles for each dollar of oil revenue, helping the Kremlin maintain spending on the military and social programs, Weafer said.

The government and the central bank have been able to manage the ruble’s decline by telling energy exporters when to exchange their dollar earnings. “It is an entirely managed currency,” Weafer said.


That intentional devaluation now “appears to be overdone. I think this is now the message from the central bank — the weakness was planned, but it’s overdone and they want to pull it back,” he said.

Russian officials say a massive explosion at a gas station in Russia’s southern republic of Dagestan has killed 35 people and injured scores more.

Aug. 15, 2023

Sergei Guriev, provost and professor of economics at the Sciences Po institute of political studies in Paris, concurred that “there is no disaster” despite Russia’s economy having “big problems,” such as the decrease in oil and gas revenue, capital fleeing the country, a budget deficit and the weaker ruble.

It was “politically important” for the Russian authorities to have the national currency at less than 100 rubles to the dollar, and so once the ruble crossed that sensitive threshold this week, the central bank took action, Guriev said.

A weaker ruble benefits the government but also means “higher costs for households and for certain parts of the Russian war machine,” Guriev said.

“If you need to buy [weapon] components in Iran or circumvent sanctions through third countries, you need foreign currency,” Guriev said. “That’s why you have the budget deficit.”

Russian forces unleash a barrage of missiles across Ukraine, killing civilians and damaging infrastructure hours before a regional security gathering.

Aug. 15, 2023

President Vladimir Putin’s economic advisor, Maksim Oreshkin, on Monday blamed the weak ruble on “loose monetary policy” in an op-ed piece, adding that the central bank had “all the tools necessary” to stabilize the situation and that he expected normalization shortly.


By raising borrowing costs, the central bank is trying to fight price spikes as Russia imports more and exports less, especially oil and natural gas, with defense spending going up and sanctions taking a toll. Importing more and exporting less means a smaller trade surplus, which typically weighs on a country’s currency.

Inflation reached 7.6% over the last three months, the central bank said. The bank also made a big rate hike of 1% last month, saying that inflation was expected to keep rising and that the fall in the ruble was adding to the risk. The bank’s next meeting on interest rates is planned for Sept. 15.

After Western countries imposed sanctions on Russia over the invasion of Ukraine in February 2022, the ruble plunged in value to as low as 130 to the dollar, but the central bank raised its key interest rate to as high as 20% in the days afterward and enacted capital controls that stabilized the currency’s value. It later began cutting rates.