Russia Hikes Key Rate to 17% to Halt Rouble’s SlideRussia | December 16, 2014, Tuesday // 11:16| views
A file photo dated 04 March 2014 showing an exterior view of the Russian Central Bank building in Moscow. EPA/BGNES
Russia’s central bank announced on Tuesday it increased its key lending rate to 17% with immediate effect to avert a currency crisis.
The rouble on Monday posted its biggest one-day drop versus the US dollar and the euro since 1999. The Russian currency traded 5.22 roubles lower to the dollar at 63.4 and 6.53 rubles lower to the euro at 78.81.
The central bank said in a press release the rate hike“is aimed at limiting substantially increased ruble depreciation risks and inflation risks.”
The shock hike in the central bank’s weekly repo rate - the sixth increase this year - takes the rate to heights not seen since Russia’s default in 1998. It comes less than a week after the central bank raised the rate by one percentage point to 10.5% - a move considered by experts to be insufficient to halt the rouble’s decline.
The central bank also sharply increased – to USD 5 B from USD 1.5 B – the maximum volume of foreign currency it provides to Russian banks through 28-day foreign exchange repo auctions. It also decided to to conduct 12-month foreign exchange repo auctions on weekly basis.
The rouble has lost nearly half of its value against the dollar since the beginning of the year, as plummeting crude oil prices and Western economic sanctions imposed over Moscow’s backing for pro-Russian separatists in eastern Ukraine took their toll on the Russian currency.
The World Bank said last week that Russia's oil-dependent economy would shrink by at least 0.7% next year if oil prices didn’t recover. According to Capital Economics Russia’s economy would shrink by 2% in 2015.
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