Russia's Ruble Trouble

Russia's central bank raised interest rates from 8.5% to 12% at an emergency meeting yesterday, the highest level since April 2022. The move comes one day after the ruble dropped past 100 against the US dollar—valuing it less than a US penny—for the first time since Russia invaded Ukraine. Before the announcement, the ruble had briefly strengthened but its value remains down more than one-third since the start of the year.

The Kremlin's chief economic adviser blamed a loose monetary policy that devalued the currency. The central bank's decision to raise rates is likely due to escalating inflationary pressure driven by increased war-related spending, a surge in domestic demand surpassing the economy's production capacity, a deteriorating oil-and-gas trade position, reliance on imports, and Western sanctions on Russia. Annual inflation currently stands at 4.4%, above the targeted 4%, and experts predict it could hit up to 6.5% by year-end.

See the effect of sanctions on Russia's economy here and on the global economy here.