Russia’s central bank hikes key rate to 17% as falling ruble threatens to paralyze economy

Posted: December 16, 2014 in Uncategorized

Financial Post

WASHINGTON — The Bank of Russia has raised its key interest rate to 17% from 10.5% in a desperate move to boost its currency and rescue its troubled economy.

The action comes after the ruble’s value has sunk roughly 50% since January, battered by Western sanctions imposed over the conflict in Ukraine and plunging worldwide oil prices. The falling ruble is threatening to escalate Russia’s inflation to dangerous levels and paralyze the economy.

The bank’s aggressive move illustrated the magnitude of the financial perils confronting Russia. It reflected fears that the ruble’s decline could trigger consumer panic, incite a run on banks and deepen Russia’s economic problems.

“They did it as a lure to encourage people to keep their rubles at home rather than continue to flee the currency and the country,” said Barry Eichengreen, an economist at the University of California, Berkeley. “It’s a way of buying time. It…

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