News from Putin: Russia’s central bank keeps interest rates on hold | City & Business | Finance
Following President Vladimir Putin’s invasion of Ukraine, severe financial restrictions were imposed on Russia, leaving the central bank scrambling to support the plummeting rouble. In addition to shutting down the Russian stock market, the central bank raised interest rates to 20%, a move it said “helped maintain financial stability and prevent runaway price spikes.” Despite his hopes, inflation soared to 12.5% in the first two weeks of the conflict, its highest level since 2015.
Meanwhile, a crisis of confidence in the ruble has seen Russians queuing at ATMs to withdraw and change money, prompting the central bank to put in place controls on access to foreign currencies.
In a Friday, March 18 statement, the central bank said: “The Russian economy is entering a phase of large-scale structural transformation, which will be accompanied by a temporary but inevitable period of rising inflation.”
He also admitted that indicators suggested “a deterioration in the situation of the Russian economy”, with many companies reporting difficulties in production and logistics due to the imposed sanctions.
William Jackson, chief emerging markets economist at Capital Economics, noted that the bank “seems to think it has done enough to stabilize the financial system.”
“While we are hesitant to say too much, it may suggest that policymakers’ goal (balance-of-payments tensions permitting) is to reduce capital controls, return to a floating rouble, and make inflation-targeting regime the center of monetary policy again.”
In another hint of attempts to return to normalcy, the bank’s governor, Elvira Nabiullina, said the bank was ready to gradually resume trading on the Moscow Stock Exchange.
Stock trading on the Moscow stock market has been suspended for three weeks now over fears of a massive sell-off leading to a stock market crash.
Speaking today, Ms Nabiullina said: “The banking system is functioning flawlessly. The liquidity situation has stabilized. We are fully providing the banks with the necessary funds.”
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On Friday, Ms Nabiullina was also tipped to continue for another term as governor after President Putin asked the State Duma to consider a proposal for a third term.
There have, however, been rumors that a Yale-educated economist has twice tried to quit, although this has been denied by the Kremlin.