Russia raises key interest rate to 17% amid rouble decline

The bank said the move was to try to ease the rouble's recent fall in value.

The Russian currency has dropped to a new low against the US dollar, as falling oil prices and Western sanctions continue to weigh on the country's economy.

It pulled back some ground to 62 roubles per dollar from a low of 67 earlier.

The 60 mark is considered a "psychological barrier" for Russia's national currency, says the BBC's Moscow correspondent, Steve Rosenberg.

Since the start of the year, the rouble has lost more than 45% of its value against the dollar.

Most analysts thought the move would work to curb inflation, which is running into double figures.

But it could cause problems in other areas. Neil Shearing, chief emerging markets economist for Capital Economics, said the rate rise "could prove to be a turning point in the 2014 rouble crisis".

"The price, however, will be a further tightening of credit conditions for households and businesses and a deeper downturn in the real economy in 2015," he said.

Russia's central bank has tried unsuccessfully to stabilise the currency, buying roubles in the markets.

It has spent more than $70bn (£44.7bn) supporting the rouble since the start of the year.

"This decision is aimed at limiting substantially increased rouble depreciation risks and inflation risks," the central bank said in a statement. The decision is effective from Tuesday.

The leap in rate follows an increase to the prior rate of 10.5% on 11 December and an increase of 1.5% to 9.5% in October.

Last week, the World Bank warned that Russia's economy would shrink by at least 0.7% in 2015 if oil prices did not recover. Capital Economics' latest prediction is for a contraction of 2%.

Raising interest rates has its own risks, as more expensive borrowing can itself slow growth. But it may also stem the tide of money leaving the country.

On Monday, oil prices slumped to lows not seen for five-and-a-half years. US benchmark crude West Texas Intermediate traded at $55.91 a barrel, while North Sea Brent crude traded near $60 a barrel. Both markets have fallen by almost half since June.

Source: BBCnews

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