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Russia is trying to recover from currency dip by hiking interest rates

LEILA FADEL, HOST:

This week, Russia's central bank announced a significant hike in the country's key interest rate. The move comes as the government tries to stem a monthslong slide of the ruble due to the sanctions Western countries have imposed over invasion of Ukraine. From Moscow, NPR's Charles Maynes reports.

CHARLES MAYNES, BYLINE: The ruble has shed more than a third of its value this year, but alarm bells didn't go off until the Russian currency hit triple digits to the dollar - 100 rubles to the dollar this week.

(SOUNDBITE OF ARCHIVED RECORDING)

VLADIMIR SOLOVYOV: (Speaking Russian.)

MAYNES: "They're laughing at us overseas," says Vladimir Solovyov, a key Kremlin propagandist, on his daily talk show. "The ruble," said Solovyov, "is now one of the worst currencies in the world thanks to a central bank that won't even bother to tell the people what's happening."

Russian economist Maxim Mironov, a professor at the IE Business School in Madrid, says blaming bureaucrats to deflect blame from the Kremlin is a tactic that dates back to the czars.

MAXIM MIRONOV: The czar is good, but his aides are bad.

MAYNES: Mironov says it is the Kremlin that's responsible for Russia's currency woes, just as it's responsible for the invasion of Ukraine in February of last year that prompted them.

MIRONOV: Because before February, exchange rate of ruble was, really, market rate. So you have supply and demand. Starting from February, it stopped being a normal currency.

MAYNES: Mironov says the Kremlin started manipulating the ruble's value, imposing restrictions and price controls amid Western sanctions, yet that solution has run into trouble over the past year as losses fueled by massive military spending and a Western price cap on Russian oil exports have cut into energy revenues.

In an emergency session this week, the central bank moved to prop up the currency by raising the key interest rate 3 1/2 percentage points up to 12%, a jump that nudged the ruble's value up slightly. Whether that calms the waters remains to be seen. The Kremlin may even have an interest in keeping the ruble relatively weak. It allows the government to maintain a surge in wartime spending at nearly half the price, albeit at the risk of inflation and a growing budget deficit.

Still, the economist, Mironov, says Russia's economy faces no danger of immediate collapse or of Putin's war chest running dry, as many in the West had wished.

MIRONOV: I think it's wishful thinking. He's going to have enough money for the war, and I wouldn't bank on the possibility that he's going to run out of money - never.

MAYNES: More likely, he argues, the Russian leader will scrimp on social programs that could make life more difficult for average Russians as the war drags on.

Charles Maynes, NPR News, Moscow.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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