Russia raises interest rates to fight inflation

2023-07-21 13:48:00

The erosion of the rouble, which was trading this Friday at 100.3 rubles for 1 euro, seems inexorable. She pushed the Russian Central Bank (BCR) to act on Friday to avoid seeing inflation flare up again, like last year when the rise in prices reached 17.8% in April.

“Since mid-2022, the ruble has experienced a steady depreciation: in one year it has lost 38% against the dollar, and 17% since February 2022 (before the outbreak of the war)”noted the Asterès research firm.

Read alsoRussia: the tumble of the ruble continues … and is not ready to stop

A weakness which notably burst into the open during the abortive coup d’etat of the head of the Wagner division on June 23. Faced with the threat of renewed political instability, Russian savers “probably accelerated the (yet controlled) capital outflows”further notes the firm.

« Inflation forecasts have increased “, explained in a press release the BCR, considering that” domestic demand trends and ruble depreciation since the beginning of 2023 significantly amplify inflationary risk ».

Bring inflation down to 4% in 2024

Despite this, the central bank maintains its objective of bringing inflation down to 4% in 2024, when it should reach, according to its forecasts, between 5% and 6.5% at the end of 2023. Its decision to raise its key rate is in line with analysts’ expectations, who said they had been betting for several days on an increase of between 0.25 point and 1 percentage point. Thanks to relatively stable macro-economic indicators, the key rate had nevertheless remained for several months at the level announced last September (7.5%), far from the peak reached just after the launch of the military intervention in Ukraine. In the wake of the first international sanctions, the BCR had drastically raised its rate to 20%, before proceeding with several cuts, reassured by the resilience of the Russian economy.

The ruble victim of the price of oil which remains relatively weak

According to observers, the weakening of the ruble is explained in particular by an oil price which remains relatively low, despite the decisions of OPEC+ aimed at limiting world production. For Adam Button of ForexLive, “theoil is a problem for Russia “, due to the fall in prices, which affects the world’s leading exporter of crude oil and refined products combined. The first vice-president of the BCR, Ksenia Ludayeva, had affirmed at the beginning of July that the current dynamics of the exchange rate were, according to her, linked to “ decline in export earnings “. Asked about this, the spokesman for the Russian presidency, Dmitry Peskov, assured him that “the Kremlin clearly sees no threat to the financial stability of the country”. And to brag: On the contrary, the situation is better than could be expected. »

International sanctions that weigh

In a sign that the sanctions are nevertheless weighing on the national economy, Russia’s gross domestic product contracted by 1.9% in the first quarter, according to Rosstat, and the national deficit could reach between 3% and 4% by the end of the year, according to experts, higher than the 2% expected. Faced with the acceleration of federal spending, largely linked to the intervention in Ukraine, the Ministry of Finance has already announced on Wednesday budget cuts for 2024 of up to 450 billion rubles (4.4 billion euros).

More than 120 Russian and Kyrgyz companies blacklisted by the United States

The United States placed Thursday, July 20 more than 120 Russian and Kyrgyz companies on its blacklist thus sanctioning their contribution to the Russian war machine in Ukraine. The sanctions aim in particular to restrict Russia’s access to embargoed material, including electronic components that can be reused by the Russian military-industrial complex, said the head of the American diplomacy, Antony Blinken, in a press release. ” These sanctions will prevent Russia from accessing essential materials, inhibit its future energy production and export capabilities, limit its use of the international financial system and crack down on those who are complicit in circumventing sanctions. “, he said.

Among the dozens of companies targeted are Russian banks, companies in the energy, shipping and technology sectors, as well as manufacturers of defense equipment. There are also seven Russian research institutes in the field of technology and under state control. Several Kyrgyzstan companies that have allowed Russia, according to the US Treasury, to circumvent restrictions on the export of technologies as part of US sanctions imposed on Russia after its invasion of Ukraine in February 2022, are also targeted.

(With AFP)