On December 20, 2024, the Central Bank of the russian federation (CBR) decided to hold interest rates at 21 per cent, marking a shift from its recent approach to tackling inflation. At its last meeting in October 2024, the CBR hiked interest rates from 19 per cent to 21 per cent, the highest rate since the beginning of the war in 2022. Criticism of high interest rates is growing amongst russian businesses; however inflationary pressures are also likely intensifying, in part due to the recent depreciation of the ruble, the UK Defense Intelligence reports.
In November 2024, the ruble depreciated to its lowest rate against the US dollar since the invasion of Ukraine in 2022 (114 per the U.S. dollar). The drop in the ruble’s value was almost certainly driven by the announcement of sanctions on Gazprombank, followed by the publication of economic statistics indicating continued overheating of russian economy. In response, the CBR announced it would cease the purchase of foreign currencies until 2025.
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However, the ruble remained above 100 to the U.S. dollar until December 20, 2024, leading to wide market expectations of another interest rate hike. The CBR’s decision to hold interest rates at the current level will likely add to the imbalances in the economy due to the inflationary effects of the depreciation, labour shortages and high government spending.
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