Blog Post #8 – Russia Increases Interest Rates
Article of Discussion: “Russia Increases Interest Rates”
Date of Article: October 31stth 2014
The BBC’s article Russia Increases Interest Rates discusses the decision of the Russian central bank to increase Russian Interest rates from 8% to 9.5% when analysts only anticipated an increase to 8.5%.This is due to high inflation and a weak currency. To make matters worse the EU has launched a trade dispute against Russia, claiming that Russia placed tariffs higher than allowed on a number of goods.
What does this mean for the business environment Russia? Well personally I believe that it may be a big blow. With higher interest rates the cost of borrowing money will be higher and therefore this may discourage local entrepreneurs to make loans in order to develop their businesses or make investments. I also believe this will especially bad for Russia with regards to the international business market. With the rates having already increased by 5.5% at the start of the year, these trends may provide worrying signs for foreign entrepreneurs/investors looking to enter the Russian market and make foreign direct investment (FDI) or expand their business. This could be bad for the Russian economy as Russia is among one of the top receivers of FDI in the world. Moreover, with the European Union initiating a trade dispute with Russia at the WTO there are even more flags regarding international trade. So the question is can Russia cut its inflation levels and build a better environment for investment via the reduction of its interest rates? We shall see in the coming years.
Cover Image Source: Image: AFP/File Dmitry Serebryakov