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In Fear of Sanctions, Russia's Central Bank Raises Key Interest Rate

Published: July 26, 2014 (Issue # 1821)



  • Russia's Central Bank raised its key interest rate to 8% on Friday.
    Photo: Wikimedia Commons

Russia's Central Bank on Friday unexpectedly raised its key borrowing rate for a third time this year in expectation of heightened international economic sanctions against Russia over the unrelenting crisis in Ukraine.

Russia's main financial regulator increased the key rate from 7.5 to 8 percent, saying that even in the present situation of slowing economic growth, quelling inflation is its main priority.

The decision comes as Russia is embroiled in the worst political standoff it has seen with the West since the end of the Cold War. The downing of Malaysia Airlines flight MH17 in conflict-torn eastern Ukraine on July 17, which led to the deaths of all 298 people on board, has prompted the United States and European Union to consider more wide-ranging sanctions against Russia unless the government cooperates on de-escalating the conflict.

"Inflation risks have risen, connected, among other things, with the increased political tension and with its possible impact on the dynamics of the national currency rate, as well as with the changes in tax and tariff policies that are being discussed," the Central Bank said in a statement on its website.

"This decision is both unexpected and controversial," Alexander Morozov, chief economist for Russia and the CIS at HSBC, told The St. Petersburg Times.

EU ambassadors on Friday reached a preliminary decision to move ahead with economic sanctions, with likely measures to include closing off EU capital markets to state-owned banks and halting future arms sales to Russia, Reuters reported.

According to Morozov, raising the key interest rate was a drastic response to the phantom risk of sanctions, whose content and possible effects cannot yet be known.

"The Central Bank still had other means to deal with inflation, such as making its control of the banks more efficient," he said.

The Central Bank has already increased its key rate from 5.5 to 7 and then to 7.5 percent this year in an attempt to counter the impact that the depreciating ruble has had on the price of imports. The ruble fell 10 percent against the dollar and euro in the early months of this year but has since recovered some ground, hovering around 35.15 to the dollar and 47.18 to the euro on Friday evening.

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ALL ABOUT TOWN

Sunday, Dec. 21


The Zenit St. Petersburg basketball team returns to the northern capital this evening for a matchup with Krasny Oktyabr, a Volgograd-based basketball club. Tickets for the game, which tips off at 6 p.m. this evening, can be purchased on the club’s website or at their arena, Sibur Arena, on Krestovsky island.


Satisfy your sugar cravings during Sweet New Year, an ongoing seasonal festival at the Raduga shopping center. Each weekend of December will welcome hungry visitors to taste hundreds of different kinds of desserts. Workshops are open to visitors and seasonal gifts can also be purchased for those rushing to finish their New Year shopping.



Monday, Dec. 22


Pick out the latest fashions as holiday gifts for loved ones or as early presents for yourself during the Christmas Design Sale at Kraft on Obvodny Kanal, starting on Dec. 20 and continuing through Dec. 27. Designer clothes will be on sale every day of the week or you can buy something more festive to decorate the home while sipping on hot coffee and perusing the various master classes.



Tuesday, Dec. 23


Meet Arctic explorers Fedor Konukhov and Viktor Simonov during SPIBA’s and Capital Legal Service’s event “Arctic Expedition” this morning in the Mertens House business center at 21 Nevsky Prospekt. The meeting will discuss the explorers’ ongoing eco-social project and how companies can use the project as a unique marketing opportunity. Email office@spiba.ru by Dec. 22 if you wish to attend.



Wednesday, Dec. 24


The Anglican Church of St. Petersburg we will be holding a Christmas Eve service at 7 p.m. led by Rev Wm. Shepley Curtis of the Episcopal Church. The service will be held at the Swedish Church at 1/3 Malaya Konyushennaya Ulitsa.



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