Russia raises interest rate to 6.5 percent

The Russian central bank has thus announced the strongest rate hike since 2014.

In view of the persistently high inflation, the Russian central bank is raising its key interest rate more sharply than it has been since 2014. The rate would rise from 5.5 to 6.5 percent, she announced in Moscow on Friday. The monetary authorities are expecting an inflation rate between 5.7 and 6.2 percent this year, and between 4.0 and 4.5 percent in 2022. The central bank is actually aiming for a value of four percent. It therefore reserved the right to raise interest rates further.

Higher interest rates make loans more expensive to invest and consume, which can dampen inflation. It also makes saving more attractive, which can also reduce inflation. The local currency, the ruble, is also supported, which can make imports cheaper.

However, higher interest rates can also dampen the economic upturn. According to the central bank, the Russian economy has already returned to its pre-corona level in the second quarter. For the year as a whole, it expects gross domestic product (GDP) to grow by 4.0 to 4.5 percent. Monetary policy continues to push the economy, it said.

The high inflation is depressing the standard of living of many Russians. It is one of the main budget concerns ahead of the September parliamentary elections, in which the ruling United Russia party “is likely to retain its dominance.”

(WHAT)

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