The Russian Central Bank hopes raising interest rates from 10.5 to 17 percent will give people an incentive to hold onto the ruble and not bail into say, the euro, or the dollar.
“The falling price of oil and economic sanctions are having a very dramatic impact in terms of isolating Russian entities from the international capital markets,” says Charles Movit, chief Russia economist at IHS Global Insight. Oil accounts for two-thirds of Russia’s export revenue. Raising interest rates is likely the first of many painful steps for the Russians.
“I think they’re going to have to end up doing even more radical measures, like simply stop people from taking money out of the country as best they can,” says Kenneth Rogoff, a Harvard University economist. “The banking sector can’t take this for very long. The banks can’t afford to pay these kinds of interest rates when they’ve made a lot of loans, they can’t afford to pay this to depositors.”
Pulling out of Ukraine and thereby escaping sanctions is one possible fix for Russia’s currency problem, Rogoff says. Another more likely solution would be a gradual rebounding of oil prices this coming spring.