ZEW Economist Friedrich Heinemann on the Massive Interest Rate Hike by the Russian Central Bank

The rouble has hit a record low as a result of Western sanctions. The Russian central bank reacts with a dramatic interest rate hike, raising the key interest rate from 9.5 to 20 per cent. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, has commented on that matter:

“The Russian central bank’s interest rate hike is supposed to make deposits in roubles more attractive and stem the capital flight that has now begun. This is unlikely to succeed. With the comprehensive sanctions, the rouble is no longer a freely convertible currency. In terms of monetary policy, Russia is thus thrown back to the early 1990s and the time before the country’s comprehensive economic opening. Certainly, the country can maintain international transactions to a limited extent with the help of cooperating countries and alternative payment systems. But the people now queuing outside ATMs know that the rouble is no longer a currency of value that can be used internationally. With Russia’s invasion of Ukraine, Russian assets and the rouble have suddenly acquired junk status in the financial markets.”