Eastern Europe News

Russia Raises Rates To Stop Ruble Decline And Confront Possible Higher Inflation After Talk Of More Sanctions Over Skripal Affair

The Bank of Russia surprised financial markets and raised interest rates in the face of a declining currency as talk of additional U.S. sanctions appeared in the wake of the Skripal poisoning. Russian state media has been pushing the narrative that the two alleged GRU agents who were filmed by U.K. authorities were simply gay lovers visiting Salisburg, England at the same time the Skripals were laced with Novichok nerve agent. The ‘gay’ reference seems to be mostly for domestic consumption.

UK Charges Two Russian Nationals With Skripal Poisonings, May Calls Out Kremlin In Parliament, Russia Again Denies

The Russian currency has started growing after the Bank of Russia decided to increase the key rate to 7.5% per annum. The dollar dropped by 71 kopecks to 67.54 rubles. The euro lost 73 kopecks to 79.04 rubles. The Bank of Russia lifted the key rate to 7.5% earlier today against the background of growing inflation risks, reported Russian state news agency TASS.

“The regulator attributed its actions to the deterioration of the external background, because of which the risks of accelerating inflation significantly increased – to 5.5% in 2019. For the future, the Central Bank gave a clear “hawkish” signal, not including in the statement the previous words about the likely transition to a neutral monetary policy in 2019,” wrote Kommersant.

As significantly tougher sanctions work their way through the American Congress, dubbed the ‘sanctions from Hell’, which could possibly target the Russian banking system and generate a massive financial crisis in the Russian Federation, the Kremlin may be forced to make Russian citizens withdraw foreign currency deposits in rubles, amounting to substantial losses, reported The Bell.

New U.S. sanctions might force Russians to soon remember the catastrophic 1998 financial crisis. Andrei Kostin, the head of Russia’s second largest bank, VTB, said this week that if the U.S. bans dollar payments for Russian state-owned banks, Russian owners of foreign currency accounts will be forced to withdraw rubles at an unpredictable exchange rate.

UK Charges Two Russian Nationals With Skripal Poisonings, May Calls Out Kremlin In Parliament, Russia Again Denies

Russian Prime Minister Dmitry Medvedev previously warned this would be an ‘act of economic war’.

It Was Bound To Happen: Russian Prime Minister Says US Conducting Economic Warfare Against His Country

With the behavior of Russian state media essentially confirming Moscow’s guilt to the international community over the Skripal poisonings, one wonders when the Kremlin will cease such reckless behavior. President Trump has signaled a willingness to work towards better relations but with chemical weapons use on NATO soil, this agenda seems doomed.

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