Russia Interest Rates Touches New High

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Russia Interest Rates Touches New High

Russia's Interest Rates Touches 15% Amid Weak Rouble

The Russian economy faces numerous headwinds, such as high inflation, weak RUB (Rouble), and higher budget spending. All of these factors have forced the Bank of Russia to introduce a 200 bps rate hike on Friday.

After the recent rate hike, the interest rate in Russia now stands at a record high of 15%, which also signifies that not everything is well with the Russian economy.

From July 2023 till today, 750 bps worth of rate hikes have been introduced by the Russian central bank. Especially during August 2023, the central bank had to push an emergency rate hike as the USD/RUB exchange rate crossed the 100 mark.

According to Russian officials, the current inflation levels in the country are higher than the expectations of the Russian central bank. They also added that the demand growth is higher than the supply of services/goods.

100 - 150 BPS Rate Hike Expected At Next Meeting

That's why the Bank of Russia is now thinking about a 100 - 150 bps rate hike at the 15th December meeting. For now, the forecast is for a rate hike or at least no changes to the interest rate till this year.

As for why the rate hike decision was made on Friday, the governor cited the budget as the major reason. The Russian government has increased its spending, which is also leading to higher inflation in the country.

Another noteworthy fact is the Bank's acknowledgment that the 4% inflation target for the next year will not be achievable at all. By the end of 2024, inflation in Russia will be between 4% - 4.5%.

For the most part, the experts were also forecasting a 14% interest rate in Russia. After the recent hike, it appears that the Russian economy is going through a rough patch. At the same time, no significant changes are expected for the year 2024 as well.

After the rate hike, the Rouble (RUB) jumped to its multi-week highs against the greenback. This is a sign that the markets have already started to price in the recent rate hike.

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