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RUSSIA-ECONOMY-BANK-RATE
Russia raises rates for first time since 2014
MOSCOW, Sept 15, 2018 (BSS/AFP) – Russia’s central bank on Friday raised
its interest rates for the first time since a currency crisis in 2014 as
worries about emerging market turmoil and Western sanctions batter the ruble.
The Bank of Russia said in a statement it was lifting its benchmark
lending rate by 0.25 percentage point to 7.5 percent and could raise it again
in the future to rein in any acceleration in inflation.
“Changes in external conditions” since the bank’s last policy meeting in
July “have significantly increased pro-inflationary risks,” the statement
said.
The bank cited growing uncertainty over Western sanctions as well as
capital outflow from emerging markets.
– A surprise –
The move came as a surprise: Analysts had been pencilling in no change in
borrowing rates from this meeting, after rates remained unchanged since March
2017.
Upgrading the bank’s inflation forecast for next year to 5.0-5.5 percent
from 4.0 percent previously, Bank of Russia chief Elvira Nabiullina told
journalists that the weakening of the ruble observed in August “could fuel a
further rise in inflation expectations”.
“The Bank of Russia will consider the necessity of further increases in
the key rate, taking into account inflation and economic dynamics against the
forecast, as well as risks posed by external conditions and the reaction of
financial markets,” the statement said.
The central bank also announced it would halt its purchases of foreign
currency — aimed at balancing effects of the oil price and stabilising the
ruble — until the end of the year.
The bank said this was intended “to curtail exchange rate volatility and
its influence on inflation over the next few quarters.”
Since the latest round of US sanctions and under the threat of further
measures, the ruble has dropped sharply in value against the dollar and euro.
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RUSSIA-ECONOMY-BANK-RATE 2 LAST MOSCOW
The central bank’s latest rate raise immediately pushed up the value of
the ruble against the dollar and euro after it had fallen further at the
beginning of this week.
– Ruble rising –
In the minutes after the announcement, the dollar and euro fell against
the ruble. At around 1500 GMT the euro was exchanged for 79.36 rubles on the
Moscow stock exchange and the dollar at 68.05 rubles.
On Monday the dollar broke the symbolic barrier of 70 rubles and the euro
rose to more than 81.75 rubles, levels not seen since March 2016.
The fall in the ruble’s value since August “has made the Bank much more
concerned about inflation next year,” said analysts London-based Capital
Economics.
The central bank was also acting “to stem capital outflows resulting from
fears about new US sanctions,” the analyst note said.
The Bank of Russia last increased its benchmark lending rate to 17 percent
in December 2014 in an emergency move aimed at stemming a dramatic decline in
the ruble amid falling oil prices and Western sanctions at the time.
The announcement of the new rate hike immediately bolstered the value of
the ruble against the dollar and euro.
The central bank is scheduled to hold its next monetary policy meeting on
October 26.
BSS/AFP/HR/1000