03 March 2014, Monday, 17:33

Bank of Russia raised its key interest rate in response to strong depreciation of ruble

author: Elvira Latypova

The Board of Directors of the Bank of Russia on Monday raised its benchmark rate from 5.5 to 7 percent. "The decision is aimed at prevention of risks to inflation and financial stability associated with the recently observed increased levels of volatility in the financial markets," it is said on the website of CB.  The rate is valid from 11.00 (Moscow time) March 3.

The information about the rate increase has caused a short-term decline in dollar and euro rates. According to Lenta.ru, before this information the euro was 50.13 rubles , dollar — 36.35 rubles. After the announcement the dollar exchange rate fell to 36.2 rubles, and the euro was offered at less than 50 rubles. Strengthening of the ruble did not last long — dollar and euro rates quickly won back the lost positions.

In the morning of March 3, at the opening of trading platforms, the ruble fell to historic lows against the dollar (37 rubles) and the euro (51.2 rubles). Analysts attributed the strong depreciation of the national currency to the geopolitical risks in connection with information about the possible introduction of Russian troops in Ukraine, "Rossiyskaya Gazeta" writes.

The U.S. dollar rate is set for March 4 at the level of 36.38 rubles, euro — 50.15 rubles.

Panic trends were observed and in the stock market on Monday. Russian trading began with a sharp fall. The RTS index lost 11.75 percent, the MICEX index — 9.5 percent, “Izvestiya” informs. Gazprom quotes fell by 11.8 percent on fears of gas supply disruption to Europe. Shares of Mechel (- 12.28 percent), Rostelecom ( -8.11 ), Sberbank (-11.24) lost heavily.