Russian interest rate up again
July 25, 2014
The Bank of Russia said Friday its decision to raise its main interest rate by half a point to 8.0 percent was driven mainly by inflation worries linked to political developments.
"Inflation risks have increased due to a combination of factors, including the aggravation of geopolitical tension and its potential impact on the ruble exchange rate dynamics," the bank said in a statement.
Friday's increase was the third since March, when the central bank started tightening its monetary policy.
Bracing for the worst
Although inflation woes may have played a role in the lenders' move, analysts viewed the renewed hike as a pre-emptive measure to limit capital outflows ahead of possible new sanctions by the US and the European Union.
A rise in interest could be crucial in slowing capital flight as higher returns could persuade investors to keep their money at home, but the move is also likely to depress growth as both companies and consumers have to pay more to borrow money.
The central bank admitted investment levels were currently being hit.
"Investment demand remains weak amid low business confidence, limited access to long-term financing and declining profits in the real economy," the bank said.
hg/cjc (dpa, AFP, Reuters)