This scenario bears resemblance to occurrences in August, when the ruble likewise surpassed the 100-threshold, prompting an urgent assembly of the Bank of Russia. At that gathering, the central bank hiked interest rates by 350 basis points to 12%. This choice was prompted by concerns regarding the ruble’s downturn and mounting inflation, which were attributed to lax monetary policy, according to an economic advisor to President Vladimir Putin.
In the subsequent September session, the Bank of Russia further increased its primary interest rate by an additional percentage point to 13%. This move stemmed from the enduring inflationary pressure. The central bank underscored the necessity to tighten monetary conditions to steer inflation back to the 4% target by 2024.
By September 11, Russian inflation sat at an annual rate of 5.5%, as opposed to 5.2% in August and 4.3% in July. This rise can be partially ascribed to the ruble’s depreciation, which has exerted a ripple effect on prices.
Certain entities within the Kremlin attribute the weakening ruble to relaxed monetary policy. However, the central bank highlights a notable decline in the country’s current account surplus as the primary contributing element. The Bank of Russia’s September report discloses that the current account surplus from January to August amounts to $25.6 billion, marking an 86% decrease compared to the previous year. The trade balance surplus has also tumbled by 68.3%, or $156.7 billion, over the identical period.
The ruble has encountered volatility since Russia’s invasion of Ukraine in February 2022. It plummeted to an all-time low of 120 against the dollar in March 2022 before bouncing back to a seven-year zenith. Diverse factors, including central bank interventions and export revenue, have influenced the ruble’s performance. Nevertheless, the imposition of Western sanctions, trade flow reversals, and augmented imports have exerted added strain on the currency.
The Bank of Russia persists in closely monitoring developments to ascertain financial market stability.
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