MOSCOW, December 16 (Sputnik), Anastasia Levchenko — The recent move by the Russian Central Bank that increased its key interest rate to 17 percent will not bring financial stability and is likely to deepen the recession in 2015, Vice President for Global Research at Bank of America Merrill Lynch in London told Sputnik Tuesday.
Khramov, who also served as an adviser at the International Monetary Fund, emphasized that the drastic increase of rate undermines financial stability and adds negative sentiments to the country's economy, as higher refinancing costs can further affect the banking system's profitability.
"The drastic rate hike by the CBR [Central Bank of Russia] as well as FX liquidity infusions could trigger considerable reduction of demand for expensive CBR funding and create demand for the RUB. However, the fundamental driver of the RUB weakness is still the oil prices, amplified by the western sanctions. RUB weakness could continue in case of further decline in oil prices and largely regardless of the CBR actions," Khramov told Sputnik.
Despite the largest increase since 1998 of the key interest rate by the Central Bank earlier in the day, the Russian ruble plummeted on trading to 80 rubles to the dollar and 100 to the euro, compared to 64 and 79 rubles respectively at the close of trading on Monday. Andrei Makarov, chairman of the State Duma Budget and Taxes Committee, however, claims that the stabilizing effect of the Central Bank's measure will be seen in several weeks.
Russia's economy is suffering from a sharp decline in oil prices, as the country's budget is largely dependent on energy exports. Moreover, Russian economy is feeling the impact of Western sanctions that were imposed on Russia for its alleged involvement in the Ukrainian crisis, although Moscow has repeatedly denied these claims.
