Russian central bank hikes rates by 350 bp to 12% in extraordinary meeting

A Russian state flag flies over the Central Bank headquarters in Moscow, Russia March 29, 2021. A sign reads: “Bank of Russia”. REUTERS/Maxim Shemetov/File photo

MOSCOW  -Russia’s central bank hiked its key interest rate by 350 basis points to 12 percent on Tuesday, an emergency rate move to try and halt the ruble’s weakening past 100 to the dollar after a public call from the Kremlin for tighter monetary policy.

The extraordinary rate meeting came after the ruble plummeted past the 100 threshold against the dollar on Monday, dragged down by the impact of Western sanctions on Russia’s balance of trade and as military spending soars.

President Vladimir Putin’s economic adviser Maxim Oreshkin on Monday rebuked the central bank blaming what he called its soft monetary policy on the weakening rouble.

Hours after Oreshkin’s words, as the rouble dived toward the 102 mark against the dollar, the bank announced the emergency meeting, throwing the currency a lifeline.

“Inflationary pressure is building up,” the bank said in a statement on Tuesday. “The decision is aimed at limiting price stability risks.

“The pass-through of the ruble’s depreciation to prices is gaining momentum and inflation expectations are on the rise.”

The bank last made an emergency rate hike in late February 2022 with a rate raise to 20 percent in the immediate fallout of Russia’s dispatching troops to Ukraine. The bank then steadily lowered the cost of borrowing to 7.5 percent as strong inflation pressure eased in the second half of 2022.

Since its last cut in September 2022, the bank had held rates but steadily increased its hawkish rhetoric, eventually hiking by 100 basis points to 8.5 percent at its last scheduled meeting in July. The next rate decision is due on Sept. 15.