Russia lifts rates to 12% in move to prop up rouble

Russia on Tuesday made an emergency 3.5 percentage point increase in interest rates as it tried to prop up its currency, the rouble.

Its key rate was hiked to 12% after an extraordinary meeting of the bank’s board of directors, which was called after the rouble nosedived below 100 to the dollar on Monday morning when it cost 101.04 per US dollar. However on Tuesday it had strengthened to 0.99.

The central bank said it had taken the decision to “limit risks to price stability” after several inflation indicators rose to more than 7% in the past three months, well above its 4% target.

Russia's economy has been under pressure due to imports rising faster than exports and spiralling military spending due to its unprovoked invasion of neighbouring Ukraine.

"Shackled by sanctions Russia can’t reap the benefits of the weaker rouble with exports plunging as key markets are blocked, while imports are surging and defence spending soaring," said Hargreaves Lansdown analyst Susannah Streeter.

“With conflict in Ukraine entrenched, the sanctions grip tight and an ongoing voracious demand for new weapons, there is no easy escape from the economic fallout of the invasion."

Reporting by Frank Prenesti for Sharecast.com