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Russia raises interest rate to 13% as economy struggles

Russia’s central bank raised its key interest rate by a percentage point to 13% on Friday, a month after imposing an even bigger hike.

Concerns about inflation persist and the ruble continues to struggle against the dollar. In August, the bank raised the interest rate to 12%, a jump of 3.5 percentage points, as the ruble fell to 100 against the greenback.


And, although the ruble exchange rate has improved slightly after the rate hike, it remains around 95 to the dollar, significantly weaker than a year ago, when it traded around 60 to the dollar. American dollar.

By raising borrowing costs, the central bank is trying to combat rising prices as Russia imports more and exports less, particularly oil and natural gas, with increased defense spending and sanctions that devastation. Importing more and exporting less means a smaller trade surplus, which generally weighs on a country’s currency.

“Export revenues from the sale of oil are our most important source of income. These revenues have already decreased by around 40 to 45 percent and it appears that this trend will continue,” said Ruslan Grinberg, scientific director of the Russian Institute of Economics. Academy of Sciences.

Unemployment – ​​or lack thereof – is also a problem. Even before the war, Russia had a problem with its low birth rate, which meant it had a small workforce. Since the invasion, there has been a brain drain to former Soviet states like Georgia and many men have been drafted into the army.

“The Russian economy is working at the limit, at the absolute limit of its capabilities. And this can be verified, first of all, by such an indicator as unemployment, which is at historically low levels. This means that it “There’s literally no one working in the country,” said Alexandra Prokopenko of the Berlin-based Center for East European and International Studies.

“When there is no one to work, it means that production capacity is pushed beyond reasonable limits. So the Russian economy is doing its best to overcome the pressure it faces after Vladimir’s decision Putin to invade Ukraine.”

Yet the Russian government recently upgraded its economic growth forecast for 2023 to 2.8% and predicted that next year GDP would grow by 2.3%.


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