Russia's central bank on Friday raised interest rates by more than expected, by 100 basis points to 8.5%, for the first time since emergency measures taken following the outbreak of war in Ukraine almost 17 months ago.
The bank confirmed in a statement that it is open to the possibility of increasing the key interest rate in its upcoming meetings, to stabilize inflation near 4% in 2024 and beyond.
Following the first international sanctions imposed on Moscow over the war in Ukraine, Russia's central bank raised the interest rate to 20 percent, before embarking on several cuts as the Russian economy resilient.
But in recent weeks, the ruble's depreciation has prompted Russia's central bank to act to avoid rising inflation, as happened last year when prices rose to 17.8% in April.
The Central Bank of Russia noted in its statement that "the increase in domestic demand outweighs the capacity for production growth due to the limited availability of labor resources," and said that the ruble's depreciation this year "significantly increases pro-inflation risks."
According to Alexander Isakov, an economist specializing in Russian economics at Bloomberg, "raising the interest rate alone is unlikely to prevent further depreciation of the ruble, due to strong capital outflows and the decline in currency support from the country's current account surplus."
The armed rebellion of Wagner mercenaries, which threatened President Vladimir Putin's authority for a short time, risks causing increased cash outflows at a time when declining energy profits and a recovery in imports drain the economy and hard currency.
The ruble's depreciation is expected to continue in the coming months, with the Russian currency losing about 18 percent of its value this year, and a third of that fall occurred after Wagner tried to march on Moscow.