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Russia’s key rate hike to 17% to curb inflationary expectations — Central Bank chief

December 16, 2014, 12:27 UTC+3 MOSCOW
Russia’s Central Bank took a decision early on Tuesday to hike the key rate determining the borrowing cost for commercial banks to 17% from 10.5%
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Central Bank Chief Elvira Nabiullina

Central Bank Chief Elvira Nabiullina

© ITAR-TASS/Valery Sharifulin

MOSCOW, December 16. /TASS/. The regulator’s key rate hike to 17% will bring down inflationary expectations and help ease the negative effect of the ruble devaluation, Central Bank Chief Elvira Nabiullina said on Tuesday.

Russia’s Central Bank took a decision early on Tuesday to hike the key rate determining the borrowing cost for commercial banks to 17% from 10.5%.

“We have made a decision to raise the key rate to 17% from 10.5% to limit the negative effects of the national currency weakening,” the top banker said. “This decision is aimed at curbing inflation and inflationary expectations.”

Russia’s national currency is weakening primarily under the impact of external factors such as falling oil prices and restrictions for Russian banks to make borrowings on international markets, Nabiullina said. “We recently introduced a floating exchange rate for the national currency. It allows for mitigating the impact of external factors on the Russian economy.”

The ruble weakening is a signal for the Russian economy to adapt to new conditions, the Central Bank chief said. “We must learn to live in a new zone and be increasingly oriented at our own sources of financing and projects and give chances for import substitution,” Nabiullina said.

In order to prevent the restraining effect of the rate hike on the development of Russian projects, the regulator has kept unchanged special instruments and rates on them, the Central Bank chief said. “This relates to investment projects, project financing and projects aimed at supporting small and medium business and raw material exports,” she said.

Commenting on the ruble’s sharp devaluation on the domestic foreign currency market on Monday, the top banker said this had largely occurred under the impact of external factors. “We know this problem,” she said. “In the Central Bank’s estimates, Russian companies have the possibility to repay foreign debts. In order to mitigate this process, we are developing our instruments and lending foreign currency to them,” she said.

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