The Bank of Russia’s increase in the key interest rate to 15% will not have a significant impact on reducing inflation and strengthening the ruble. This opinion was expressed by economist Konstantin Tserazov in a conversation with socialbites.ca.
According to him, inflation is affected by the ruble exchange rate primarily through the cost of imports. The aggressive increase in the key interest rate launched by the Central Bank in mid-August did not help weaken the weakening trend in the national currency.
“The ruble began to strengthen only after the signing of the decree on the compulsory sale of export proceeds. Therefore, the tightening of monetary policy turned out to be an ineffective measure to combat inflation through the strengthening of the ruble,” Tserazov said.
The Central Bank explains high inflation by the fact that production cannot meet the increasing demand and compensates for the goods deficit with imports. However, the economist doubts the effectiveness of interest rate increases in the fight against inflation.
According to him, a significant strengthening of the ruble, as in last year, should not be expected, as import demand will continue due to a decrease in domestic production of a number of goods.
Experts state that high rates will lead to an increase in loan prices and the weakening of small companies, which will negatively affect competition and the quality of goods. The consumer sector will also suffer from expensive loans.
At the same time, higher interest rates will only limit demand temporarily, and demand will recover after falling. Tserazov also notes that inflation has other factors beyond the control of the Central Bank.
“First of all, as a result of de-dollarization of foreign trade, Russian companies began not to receive the most liquid currency, such as the Indian rupee, for their exports. This money is difficult to convert and often difficult to manage. This factor limits the flow of foreign currency to the Moscow Stock Exchange and therefore puts pressure on the ruble. The expert stated that the weakening of the ruble also increased inflation.
According to Tserarov, another factor supporting inflation is budget expenditures. There is also the expensive logistics factor in trade with Asia. You should also not forget about the periodic indexation of tariffs for natural gas, housing and communal services.
Before that, the Central Bank of Russia announced when will start inflation will fall.
Formerly Central Bank raised key rate up to 15%.
Source: Gazeta

Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.