Russia has increased its interest rate to 17 per cent to help tackle the falling price of the rouble.
The nation's central bank announced that rates would be moving from 10.5 per cent to 17 per cent, a significant shift in the space of just 24 hours. Bank officials stated that the decision was taken to ease the continuing drop in the value of the rouble. The Russian currently has lost 50 per cent on the US dollar throughout the year.
Russia's economy has taken a significant hit in recent months as Western sanctions start to bite and oil prices continue to fall. The country relies heavily on revenues from oil exports but the drop in the price of both Brent crude and US oil has left Russia teetering on the brink of a recession. This has been highlighted with the falling rouble value.
Oil slipped once again on Tuesday (December 16th) with Brent crude falling under $60 (£38) a barrel for the first time since July 2009. Figures showed that Brent had now reached $59.75 a barrel while US crude was at $54.85. This continued fall meant that oil prices have now halved since June due to a fall in demand and increasing supplies.
This has been impacting on Russia with the rouble falling against the dollar. On Tuesday, the dollar bought 67 roubles, while the rate rise did bring it up to 58 against the US currency it has since fallen back to 62. It represents a 45 per cent drop against the dollar since the turn of the year.
Neil Shearing, chief emerging markets economists for Capital Economics, said: "The price, however, will be a further tightening of credit conditions for households and businesses and a deeper downturn in the real economy in 2015."
The central bank said that raising interest rate was aimed at limiting inflation and depreciation risks.
Find out about commodities trading and learn CFD strategies at City Index
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.