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Fighting inflation: Russia raises interest rates to 10.5%

Fighting inflation: Russia raises interest rates to 10.5%

MOSCOW: The rise of inflation has forced Russian central bank to increase its key interest rate by one percentage point to 10.5%. It comes just six weeks after it raised the rate to 9.5% from 8%.

The bank’s official website added that it would continue raising the rate “in case of further aggravation of inflation risks”.

In its monthly economic update the Bank of Russia also said that, as of 8 December, annual inflation was 9.4%.

A weak rouble and a ban on western food imports have kept inflation high.

“The hope is that [interest rate rises] will cut consumption and stop prices rising so fast,” said the BBC’s Moscow correspondent Steven Rosenberg.”

But there’s a downside to that; raising interest rates slows economic growth – and that’s not good, with Russia on the brink of recession.

“As for the rouble, it has continued to slide and has fallen to a new low against the dollar.”

The rouble hit new lows after the rates decision, and was trading at 55.45 against the dollar and 68.98 against the euro not long after the bank’s announcement.

The rate hike comes a day after the bank admitted it had intervened to support the rouble in foreign currency markets last week, spending a total of $4.53bn (£2.9bn).

It has spent more than $70bn supporting the rouble since the start of the year.