News ID: 14751
Published: 1224 GMT November 01, 2014

Russia’s Central Bank lifts key interest rate

Russia’s Central Bank lifts key interest rate

The key lender raised its key rate to 9.5 percent, a 1.5 percent jump from the last increase in July. The bank said the decision greatly weighed on external conditions, such as low oil prices, sanctions, and the weakening ruble, changed “significantly.”

“In September and October, the external conditions have changed significantly: the price of oil sharply dropped amid several individual countries have imposed stricter sanctions on a large number of Russian companies. Under these conditions the ruble is weakening, and the introduction of the import ban on certain foodstuffs in August has led to further acceleration in consumer prices,” the Russian Central Bank (CBR) said in a press release Friday, RT reported.

The rate went up 150 basis points. The last time the bank increased the rate was in July, when it was hiked 50 basis points to 8 percent. In April, the bank unexpectedly raised its key rate to 7.5 percent.

The key interest rate is a tool central banks uses to balance inflation and economic growth. Inflation significantly increased in Russia to 8.4 percent in September and October, far above the 5.5 percent target. The bank expects inflation will remain above 8 percent through the first quarter of 2015. Although increasing the interest rate can help trim inflation, it also means that loans become more expensive, which can slow down economic growth.

Although increasing the interest rate can help trim inflation, it also means that loans become more expensive, which can slow down economic growth.

In September Russia’s GDP growth accelerated to 1.1 percent which marked an economic revival from the flat growth last year.

Central Bank chairwoman Elvira Nabiullina said three external challenges had led the bank to raise its interest rates; oil prices, the weak ruble, and sanctions against Russia.

Low oil prices threaten the Russian economy, as revenue from oil and gas exports account for more than half of the country’s budget. The Kremlin's 2015 draft budget assumes Russia's key export blend, Urals, at $100 per barrel. WTI, the main North American blend, and Brent, European, have both lost more than 20 percent in value since the summer peak price of $116. Prices hit a four-year low in mid-October. WTI is trading at $80.44 per barrel, and Brent at $85.30 per barrel at 3:00pm MSK on Friday.

   
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