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Bank of Russia surprise decision on key interest rate: Financial stability risks no longer increase

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This reduction, which will take effect on Monday 11 April, is justified by the fact that “risks to financial stability are still present, but have ceased to increase for the time being”, thanks in particular to restrictions on capital movements. informed the Central Bank of Russia in a press release.

The institution added that it will take into account the risks posed by internal and external conditions when deciding on monetary policy, adding that it is possible to adopt further interest rate cuts at future meetings.

The Russian ruble has lost up to 40 percent of its value against the dollar after the United States and its allies imposed sanctions on Russia after the Feb. 24 invasion, but have recovered in recent weeks thanks to restrictions on capital movements by Moscow. the continuation of foreign exchange earnings from oil and gas exports.

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Following the unprecedented financial sanctions imposed on Western Russia after the invasion of Ukraine, the Central Bank of Russia has ordered commercial banks to cap the amount that customers can withdraw from their foreign currency deposits at US $ 10,000. In addition, commercial banks are forced to stop selling hard currency to customers. The Moscow Stock Exchange was also closed for almost a month, and Russia’s sovereign wealth fund became a buyer of assets to keep the value of listed companies.

The Bank of Russia’s board of directors has decided to raise the key interest rate by 10.5 percentage points to 20% a year from February 28 to support financial stability and prices and protect citizens’ savings from depreciation.

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This is a historical key rate high. The previous record of 17% was reached in December 2014.

“The Board of Directors of the Bank of Russia has decided to increase the key rate to 20% per year from February 28, 2022. External conditions for the Russian economy have changed dramatically. Increasing the key rate will ensure that deposit rates rise to the required levels to offset the increased risks of depreciation and inflation. This is necessary to sustain financial and price stability and to protect citizens’ savings from depreciation, “the statement said.

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