Russia’s central bank (BCR) said on Friday it was raising its key interest rate from 12% to 13%, the third consecutive increase in less than two months, to counter inflation and a weakening ruble amid international sanctions over the war in Ukraine, reports said. for AFP.

“We expect that the growth rate will be more moderate in the second half of the year,” its director Elvira Nabiullina also admitted at the press conference.

Earlier on Friday, its staff announced in a press release that, given the “high inflationary pressure (…)” and the “weakening of the ruble this summer”, “further tightening of monetary policy is necessary”, thus raising the key rate by 13 %.

The decision comes just days after Vladimir Putin said he saw no “insurmountable problems” with the ruble, after insisting for a year and a half that the multiple sanctions slapped on Russia following its attack on Ukraine had not lasting damage to Russia. economy.

However, despite two consecutive increases in the key interest rate by the central bank, the first on July 21 (from 7.5% to 8.5%), followed by an emergency increase in mid-August to 12%, the national currency remains at a very low level. equal to the dollar and the euro.

On Friday, one dollar was worth 97 rubles and 103.1 to the euro, almost as low as in March 2022 after a wave of sanctions that hit the Russian economy in response to the offensive in Ukraine.

This ruble weakness has been inexorably accompanied by a rebound in inflation (up 5.15% in August), which has added to the rising cost of the conflict in Ukraine, leaving many Russians to fear for their standard of living.

Causes of decline

Under these conditions, “a return of inflation to the target and its stabilization near the 4% threshold also implies a prolonged period of restrictive monetary conditions,” the central bank said on Friday, which now expects inflation to be “between 6 and 7%” at the end of the year.

One of the reasons for Russia’s difficulties is a significant decrease in revenues from the sale of hydrocarbons due to sanctions and the determination shown by the Europeans to end energy dependence on Moscow.

What do the banks say? Market critics

However, Friday’s announcement is unlikely to please all major Russian patrons.

In recent days, the managing director of the country’s main bank, Oschadbank Herman Gref, and the head of its competitor, VTB, Andriy Kostin, spoke in favor of keeping the key rate at 12%.

Gref warned earlier this week that “measures taken by the central bank to support financial stability will inevitably affect economic growth, and this will be felt by all companies and banks alike”, by increasing the cost of credit and therefore investment.

In recent months, Elvira Nabiullina has been at odds with Finance Minister Anton Siluanov, who advocates stricter controls on the movement of capital in the country, while Nabiullina believes that the government should not interfere in the national economy more than necessary. the risk of weakening it.

In mid-August, after a previous hike in the key interest rate, the two leaders met with Vladimir Putin, agreeing to a temporary status quo while waiting to see how the indicators changed.

A month later, the bank was forced to make a decision, and the authorities may even decide to do more than change the key rate.

The Ministry of Finance is insisting on restoring the obligation for large Russian exporters to repatriate and convert foreign currency earnings into rubles, forcing them to stop storing them outside of Russia, despite sanctions, so that these earnings can be integrated into the Russian economy and support the ruble.

At the beginning of 2022, the Central Bank already introduced such a mechanism, trying to limit the consequences of heavy international sanctions, before gradually lifting them, content with macroeconomic indicators.

“Contrary to popular opinion, the monetary structure of export payments does not have a significant impact on the dynamics of the exchange rate,” Nabiullina replied on Friday.