For the third time since March, Russia's central bank has increased interest rates. On Monday, banks will combat the 7.5 percent inflation with a whopping 8 percent inflation rate. Experts believe both those percentages may increase as Russia becomes more isolated.
So far this year, the ruble has fallen against the U.S. dollar and the Euro, while Moscow's stock market has fallen 7.6 percent.
"Inflation risks have increased due to a combination of factors, including, inter alia, the aggravation of geopolitical tension and its potential impact on the ruble exchange rate dynamics, as well as potential changes in tax and tariff policy," the bank's announcement said.
The situation between Russia and Ukraine, and subsequent central bank changes, has led investors and companies to pull their assets out of Russia. This increased import prices, which in turn increased inflation. Now, Russia's central bank is hoping to undo the damage by offering attractive interest rates, hoping to convince businesses to return their assets to Russia.
However, this method does have a major flaw. As CNNMoney's Mark Thompson wisely notes, this move "also means that both consumers and companies will have to pay more to borrow money. It raises the risk that the economy will sink further into recession."
The bank has already said they may decide to increase rates again. "If high inflation risks persist, the Bank of Russia will continue raising the key rate," they said in a statement.
The Bank of Russia also estimated that "GDP growth rate was close to zero in Q2 following negative figures earlier." Now, with increased sanctions around the corner, the Russian economy may suffer even more. The press statement about the new interest rates had few high notes, noting "persistently high oil prices support domestic economy." The global community has been careful not to issue crushing sanctions against Russia's much needed energy sector (30 percent of EU's energy comes from Russia).
This article is from the archive of our partner The Wire.
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