Russia’s Central Bank Unexpectedly Raises Interest Rates

Russia unexpectedly raises interest rates

Russia unexpectedly raises interest rates (RT, April 25, 2014):

The Central Bank of Russia has unexpectedly raised its key interest rate to 7.5 percent, despite earlier saying it wouldn’t change until June. Aimed at trimming inflation, it means more expensive loans and slows an economy that’s already losing steam.

The rate went up 50 basis points. The last time it was bumped up was in March to 7 percent, a 1.5 rise from the previous 5.5 percent rate.

Bank Chair Elvira Nabiullina previously said the institution would refrain from changing rates until the June meeting.

On its website the Bank gave a traditional explanation, saying the move will help keep the necessary balance between inflation and economic growth.

“The adopted decision on the key rate would ensure a decline in inflation to no more than 6.0% by the end of 2014 and help to maintain the appropriate balance of inflation risks and the risks of further economic slowdown,” it said in a statement.

The weakening ruble is another concern for Russia’s Central Bank. The ruble is the worst performing Emerging Markets currency and has lost over 8.5 percent against the dollar in 2014. On Friday the Bank set the ruble at 34.6830 against the dollar and 49.3175 against the euro. Combined the overall USD-EUR currency basket against the ruble was 42.1245.

However, the CBR also acknowledged that the economy is poised to slow during the year, citing “uncertainty about the international political situation.”

“Besides, weak economic activity in most countries which are Russia’s trading partners, restrains the economic growth of Russia,” it added.

Inflation vs. growth

In February inflation was calculated at 5.6 percent, and by March it had accelerated to 6.0 percent, both well above the Bank’s target rate of 5 percent. The Bank said it doesn’t plan to cut rates again in the next few months.

The CBR hopes to contain inflation below the target rate of 5 percent by the end of 2014, a task difficult under present “unfavorable market conditions” such as the slowing economy and weak ruble.

On April 21, the Central Bank calculated consumer prices has increased 7.2 percent, or about 0.2 percent per week.

Political tension over Ukraine has dragged down economic forecasts for Russia. While the Finance Ministry expects Russia to grow 2.5 percent in 2014, the IMF has slashed its estimate to 1.3 percent citing geopolitical risks. ().

Prime Minister Dmitry Medvedev said Russia faces ‘unprecedented’ (link) economic challenges.

However, high oil prices continue to have a stabilizing effect on the domestic economy and state finances. Oil and gas export revenues account for more than half of the Russian budget.

The Bank’s Board of Directors will next convene on June 16 and will again discuss interest rates.

The decision came the same day Standard & Poor’s downgraded Russia’s credit rating for the first time in 5 years, bumping it down to near junk status.

Economic Minister Alexei Ulyukayev said the move was “expected” yet “politically motivated.”

3 thoughts on “Russia’s Central Bank Unexpectedly Raises Interest Rates”

  1. US interest rates are going up, too, and very quickly. Mortgage rates are already over 5% for most people, and most have ARM mortgages, meaning their payments for their homes rise with each point. For every point, (example, 3% to 4%,) the payment goes up 13%. The math is staggering. Add in food and fuel costs, and the numbers are bad news for this economy which is the weakest I have ever seen.

    Thanks to Richard Nixon, we don’t have a gold backed currency, we thought our technology and products would support our dollar, and until we outsourced everything, we were okay. No longer, we are a shell of our former greatness. Our major export is death called high tech war machines, and the world is weary of the US and its heavy handed behavior.

    I know people who have been riding on low interest rates on high mortgages for years, I call them wannabe greedy guts. They have bought several properties, and are waiting for the recovery that will never happen. It is comprised of an entire circle of our economy. Many of them are the remaining shoppers and independent employers. When they get cut off at the knees, even more stores will close.

    I have warned them to change their mortgages from adjustable rates to fixed but the banks are not interested. They have several mortgages being part of the poor fools believing there would be a real estate recovery regardless there are no good jobs to support a housing revival. All their income goes to carry their properties, none of which produce any rents close to what the mortgage payments total.

    They listen to US media, and were discussing “flipping” their homes this Summer……absolutely delusional. They said housing prices were going up…..I cannot believe how many lies are fed to Americans through propaganda, and they swallow them because it is what they want to hear. I now understand why certain people prefer to listen to the pretty lies…….they cannot handle the truth.

    These people have spreadsheets showing the low millions, but their debt exceeds their abilities to pay them off, they are living month to month….. on a high scale. There are millions others living just like them, waiting for the wonderful tomorrow that will never happen.

    Month to month on any scale sucks, puts one at the mercy of the market and other people’s ability to pay you. Living off a credit card is even worse, and many folks are doing that; they have no other way to pay…….

    I have some real greedy guts in my family, I am ashamed to report, and they owe nothing they cannot pay off instantly. They keep their overhead way below their income, and continue to stuff away savings every month. This is where the rich differ from those who want to be……… but, the wannabes don’t have the discipline or the money.

    Millions of wannabe greedy guts have been riding on low interest rates for a long time, and have borrowed a lot to “increase their credit standing”. We have a mad credit system. People who own everything have difficulty getting loans because of low debt……..madness. People in debt get loans more easily.

    For any late payments, it puts black marks on their record. It really hurts when it comes to mortgage rates, a late mark means higher rates when they start going up. Looking at the rates on CNBC website today, I saw the rates for Jumbo loans (over $700K, not unusual in CA where I live) is only a shaving point below 6%. Any discrepancy will push the amount higher…….. Many folks have such loans in CA…… during the boom, $700K + was necessary to get a decent house. My 1700 square foot home ( pretty, but nothing outstanding) was appraised at $550K in Summer of 2007. It was a 3 bedroom, 2 bath home with a dining room and a wonderful view………this isn’t to brag, this is to give an idea of costs here. For all its beauty, it still needed work….about another $50-60K to make it perfect. A high level fixer.

    As one who used to pull down six figures a year( no longer), I know what it costs to live in a big house, but I was always careful not to build big debts, nothing I could not pay…. long before the crash. When I ended up alone in a big house, I rented out a room and private bath to a reliable friend……… to keep costs manageable.

    In the end, all that work didn’t matter much, real estate values have dropped like a stone, and there is no emerging economy to cause it to grow much again. I am no longer young, and cannot afford to wait out the storm, but I don’t think the US will come back this time because of the fools we have in power.

    If CNBC is showing rates at 4-5% right now, these are cleaned up, they are for people with perfect credit scores and records. Anyone who has a late mark on any payment…….companies actually punish consumers for being late at another company now……..corporations have choked the life out of this economy, it is a mine field. If one is late on a Nordstrom’s payment, a MasterCard bill dings you for it……..I have chosen not to use credit except when absolutely necessary. It has become so user unfriendly that I see no future for anyone but the greedy corporations. They have killed all small business, and are now in the process of eating their own………greed has created total madness in our system. Nothing makes sense.
    Growing interest rates are from the greedy bankers, and they are going to suck every dollar out of this dying economy that they can. Russia let the Russian Central Bank collapse last week, and Putin raised rates to 7.5%.

    Putin is making the hard choices now to grow Russia and stabilize their economy. I wish the US had let the banks fail in 2007, the TBTF banks have destroyed this economy for good. Interest rates are going up around the globe, it isn’t just Russia and the US, it is the whole world. The US has been kept isolated from the rest of the world in this sense, rates have been skyrocketing around the world. It has finally hit the US, and the pain will be widespread.

  2. Marilyn,
    Twoyears ago I watched a video of Catherine Austin Fitts, I think it was Greg Hunter interviewing her, and he asked her if the Bankers should be prosecuted for bringing the system to its knees.
    She replied “Why?, They were only doing what they were told to do”.

    That stopped me in my tracks!


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