In a surprise move last night, the Russian Central Bank raised the base interest rate by a whopping 6.5%, from 10.5% to 17%.
The move was made as a panicked attempt to stop the Russian Ruble’s free-fall, which has recently depreciated against the US Dollar by about 45%. The depreciation, coupled with the dramatic fall in the price of crude oil, is beginning to inflict some serious strains on the Russian economy, and pain is being felt increasingly by ordinary, middle and working-class Russians.
The dramatic rise in the rate of interest is reminiscent of the Bank of England’s similar move in 1992, when it was trying to keep the British Pound pegged at 3 Deutschmarks. However in that instance the market called the British Government’s bluff, recognizing that no government was going to effectively double its citizens mortgage payments just to keep its currency pegged to a certain value against the Deutschmark, and so the interest rate hike only lasted for a few hours.
Unfortunately for Russia’s residents, they are unlikely to receive any sudden escape from extremely high interest rates in the near future. The cost of living, in particular for any imports, will rise considerably.
The announcement saw the Ruble increase in value, and was trading at 58 Rubles to the USD at one point, before quickly falling back below the psychologically key level of 60 to trade at 62.
Several Forex brokers have recently begun offering trading in the Russian Ruble, including FX Pro and eToro.