Russia Cuts Interest Rates to Tame Ruble

Photo: Reuters [via Markets Insider]

The Facts

  • The Central Bank of Russia (CBR) decreased the benchmark interest rate from 14% to 11% during an emergency meeting on Thu. in an effort to reduce the value of the rising ruble.

  • The 300 basis point drop marks the third rate cut since Russia enacted an emergency jump from 9.5% to 20% following the start of the conflict in Ukraine.

The Spin

Anti-Russia narrative

Despite nosediving after Russia's invasion of Ukraine, the ruble has seemed to stage a dramatic recovery, but that's exactly what it is: staged. The ruble's rise is a result of the Kremlin's fiscal chicanery: introducing capital controls, raising rates, forcing companies to buy rubles, and limiting the amount of dollars that Russians can withdraw from foreign-currency bank accounts.

Pro-Russia narrative

Despite criticisms, the strengthening of the ruble amid a faltering world economy and sanctions on Russia is an impressive feat that's helping to tame domestic inflation. While its ascension poses risks, the CBR has prepared for this and the ruble will stabilize.

Narrative C

Russia's central bank is in a rough spot: it needs to loosen the capital controls that have sent the ruble soaring and put pressure on the economy, but if it loosens too quickly it risks opening the floodgates of capital flows out of the country. The CBR needs to tread carefully.

Establishment split



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