From Neil Irwin, commenting on the huge interest rate jump announced by Russia’s central bank in the wee hours of the morning:
It may go without saying, but a 6.5 percentage point emergency interest rate increase announced in the middle of the night is not a sign of strength.
Roger that. Russian central bankers hope that this will be an incentive for people to keep their money in Russia, earning high interest, instead of shipping rubles out of the country at warp speed and squirreling them away in any safe haven that comes to hand. And maybe it will work. Alternatively, as Irwin suggests, it may be viewed as a sign of desperation, causing Russia’s oligarchs to pile on the dilithium crystals and ship out their money even faster. You never know what’s going to work when a currency crisis goes into panic mode.
In any case, even if it works, the price is going to be high. Here in America, we argue about whether the Fed will choke off recovery if it raises interest rates to 2 percent. Russia is now at 17 percent. Even if this puts a halt to currency flight, it’s going to kill their economy. In Russia tonight, there are no good options left.
