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Russia Raises Interest Rate As Ruble Falls, Economy Stalls

  • RFE/RL

The ruble and Russia's energy-reliant economy have been battered for months by falling world oil prices and sanctions imposed by the United States, the EU, and other countries over Moscow's interference in Ukraine.

The ruble and Russia's energy-reliant economy have been battered for months by falling world oil prices and sanctions imposed by the United States, the EU, and other countries over Moscow's interference in Ukraine.

Russia's ruble plunged to record lows again against the U.S. dollar and euro on December 11, despite an effort by Russia's central bank to prop up the Russian currency by raising its key interest rate by a full percentage point, to 10.5 percent.

The interest rate hike, the fifth for Russia during 2014, came as the central bank predicted inflation in the country would reach 10 percent by year end.

The central bank has set the official exchange rate for December 12 at 54.79 against the dollar and 68.29 against the euro.

Meanwhile, the ruble continued to plunge on international markets -- falling to about 55.75 per dollar and 69.14 per euro after the close of trading in Moscow.

The ruble and Russia's energy-reliant economy have been battered for months by falling world oil prices and sanctions imposed by the United States, the EU, and other nations over Moscow's interference in Ukraine.

The ruble and Russia's energy-reliant economy have been battered for months by falling world oil prices and sanctions imposed by the United States, the EU, and other countries over Moscow's interference in Ukraine.

The bank has nearly doubled the interest rate since March, the month Russia annexed Crimea from Ukraine, when it was set at 5.5 percent.

"End of the year inflation will be around 10 percent," a Bank of Russia board decision published on its website said.

"Annual GDP growth is expected to be close to zero in 2015-2016," it added, citing depreciation of the ruble and "external conditions" in a reference to the Western sanctions and declining oil prices.

In an interview televised live on December 10, Prime Minister Dmitry Medvedev urged Russians not to "panic" and advised them to keep their savings in rubles rather than rushing to buy foreign currency.

Russian leaders have acknowledged that the sanctions have contributed to the country's economic troubles, which could undermine President Vladimir Putin's image as a leader who has pulled the country out of crisis and improved living standards.

But they have warned the West that sanctions will not alter Russia's actions.

Russia denied involvement in a war that has killed more than 4,300 people in eastern Ukraine since April, despite what Kyiv and NATO say is clear evidence of direct military support for pro-Russian separatists who hold part of the Donetsk and Luhansk regions.

With reporting by AFP, AP, and Reuters
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