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Russian regulator’s key rate hike hurts business — experts

December 11, 2014, 18:38 UTC+3 MOSCOW
The Central Bank is taking measures to fight the ruble devaluation and inflation at the same time reducing possibilities for the development of internal production as such, a business expert says
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Russian Central Bank

Russian Central Bank

© ITAR-TASS/Sergei Bobylev

MOSCOW, December 11. /TASS/. The Russian Central Bank’s decision to raise the key rate by 100 basis points to 10.5% will have an adverse effect on business, experts said on Thursday.

With such rates and the profitability level, especially in industry, businesses will be unable to actively implement import substitution programs and operate normally, said Vladislav Korochkin, first vice-president of Opora Rossii, a non-governmental organization representing the interests of Russia’s small and medium business.

“It is understandable that the Central Bank is taking measures to fight the ruble devaluation and inflation but it also turns out that we simultaneously reduce possibilities for the development of internal production as such,” the expert said.

“This gives rise to a contradiction: on the one hand, we should implement import substitution programs, i.e. to urgently build facilities and purchase new technologies, for which additional capital is required, including in foreign currency. On the other hand, it becomes increasingly difficult to do this. Also, it is not quite clear what kind of business can ensure the profitability, which is needed simply to service loans obtained at such interest rates,” he said.

Meanwhile, Business Russia Association General Council member Anna Nesterova also said that uneasy times were coming for entrepreneurs.

“Interest rates will be revised upward and, naturally, profitability levels will fall,” she told TASS. “We’ll have to tighten belts,” she added.

The Russian Central Bank made a decision at its policy meeting on Thursday to raise the key rate by 1% to 10.5% The Central Bank said in a statement it would continue raising the key rate, if inflationary expectations intensified.

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