The Central Bank unexpectedly sharply raised its key rate. What is the reason for this and how will it affect the ruble exchange rate?

Since the distant 2013, when Mrs. Nabiullina joined it, the Central Bank has been pursuing an inflation targeting policy with varying success. The logic behind this policy is quite simple: if inflation goes above the target noticeably, the key rate starts to rise. This promotion is not the last. I expected a rise of 50 percentage points, but the Central Bank preferred a larger step, most likely due to the fact that inflation is not just high, but rather high rates of its growth in recent years.

For some reason, this increase in the key rate is associated with non-working days, coronavirus, business support … By and large, if an enterprise cannot take a loan that has risen in price by 0.75%, then it probably does not need to take a loan in principle. In any case, business activity will decline approximately the same, regardless of the loan, which will be more expensive or cheaper by 0.75%. Simply because the administrative decision is a more significant factor than the lending rate.

Under these conditions, the lesser of two evils is banally chosen. Which is better: to have a slowdown in the economy with high inflation or low? The answer is obvious. Nowadays, most enterprises do not participate in some kind of lending boom, and this increase will hardly affect them in any way. At the same time, such a consistent position of the Central Bank increases the likelihood that it will be able to achieve its goal, albeit not immediately. So far, the actions of our Central Bank are absolutely consistent with the classic textbook of economics.

Certainly, this decision influenced the weakening of the dollar and the euro against the ruble, but the main factor was not that the rate was raised, but that it was raised higher than expected. When the Central Bank decided on 0.75%, this turned out to be higher than market expectations, and, accordingly, in the foreign exchange market this is a reason for the ruble to strengthen, which came true. But this factor is not too long-term, after a week it can come to naught. And then the ruble exchange rate will depend on what it mainly depends on. From export revenues, that is, oil prices, and, possibly, there will be some progress with the geopolitics I do not like: the Yukos affair is slowly maturing there, and decisions on the Malaysian Boeing are expected, and American senators have begun to raise the topic of sanctions.