Interest Rates Spike in Russia as the Economy is Slammed by Sanctions
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The Bank of Russia has been seeing a lot of economic trouble over the recent months. Not so long ago, the bank announced that the benchmark interest rate had been raised from 8% to 9.5% in an attempt to rein in potential inflation.
The inflation rate is currently above 8% and still rising, which signifies a serious economic issue within the country, especially when combined with the continuing decline of the ruble. The currency within Russia is trading at standards that are historically low against other major countries.
The Bank of Russia has been seeing a lot of economic trouble over the recent months. Not so long ago, the bank announced that the benchmark interest rate had been raised from 8% to 9.5% in an attempt to rein in potential inflation.
The inflation rate is currently above 8% and still rising, which signifies a serious economic issue within the country, especially when combined with the continuing decline of the ruble. The currency within Russia is trading at standards that are historically low against other major countries.
No wonder so many Russians are jumping ship and relocating to other countries.
Throughout September and October, series changes in external factors and conditions have taken place and had an impact on Russia. Stricter sanctions have been imposed against several large Russian companies by certain countries, and oil prices have fallen considerably. As a result of these factors, the ruble has continued to depreciate, and together with restrictions on food item importations, has resulted in accelerated consumer price growth.
Table of Contents
Putting the Interest Spike in Perspective
The interest rate spike represents a 19% rise in borrowing costs, and has shocked many analysts within the company, by being around three times the size of the increase that they were expecting. Analysts have been persistently skeptical about the ability of the bank to protect the ruble or halt inflation.
To better understand the bank’s motion, it may be worth considering the US benchmark federal fund rates, which have historically been changed in increments of no more than 0.25% or 0.50% of a percentage point. In any other astute or impressive industrialized country throughout the world, an announcement given by the central bank that interest rates may increase by more than a full percentage point over the course of a night would be a sign of economic catastrophe.
No Sympathy for Russia
According to data given by the Bank of New York, the United States hasn’t raised the benchmark interest rate by more than a percentage point in over thirty-five years. However, the Russian bank has warned that the country should expect more problems in the following months. Many people believe this is what Russia was asking for when they were invading another country and shooting down airplanes filled with innocent people.
Consumer Prices
The continuing rise of consumer prices in Russia is likely to result in a series increase of inflation expectations, creating further inflation risks. The Bank of Russia will consistently be taking measures to slow down consumer price growth to the target of 4%, but things are not looking good. What do you expect when you have a selfish dictator running your country!
The consumer prices within Russia are currently rising at an annual rate of approximately 8.4%, according to the bank, and food is one of the main commodities within the country that is becoming increasingly expensive. According to numbers given by the Bank of Russia, food prices have risen from 10.3% in August to 11.4% in September.
Today, the economy in Russia is practically stagnant, with a GDP growth estimate of 0.2% for the third quarter. That is about equal to California, Illinois, and New York. That number is pathetic.
