Page last updated at 14:56 GMT, Friday, 28 November 2008

Russia hikes rates to help rouble

Russia's 100-rouble notes are sorted into bundles
Russia has been spending billions of dollars to support the rouble

Russia's central bank increased its key interest rate to 12% from 11% in an attempt to reduce an outflow of money and curb the decline in the rouble.

The move is also aimed at containing inflationary pressures.

On Monday the head of the central bank refused to rule out the possibility that the national currency, the rouble, could weaken.

However, Sergei Ignatiev stressed that both the bank and the government wanted to avoid a devaluation.

Russia has been spending billions of dollars to support the rouble.

A fall in its value would push the price of imported food even higher - in a country which is already struggling with double-digit inflation, said the BBC's correspondent in Moscow, James Rodgers.

Default memories

"I do not rule out more flexibility in the rouble exchange rate with some tendency towards weakening of the rouble in the current conditions," Mr Ignatiev said.

His comments suggest that Russia is preparing to reduce the huge sums it is currently spending to prop up its currency, and thus allow it - gradually - to fall in value.

But the word "devaluation" has a special, unpleasant association for Russians.

People queue to buy sugar in a Moscow shop with almost empty shelves. Photo: September 1998
Many goods vanished from the shelves virtually overnight in 1998

It brings back memories of the financial crisis of 1998, when the rouble plummeted in value and millions of people across the country suffered real hardship.

Seemingly aware of that nervousness, Mr Ignatiev, is stressing that both the bank and the government want to avoid a devaluation, and is fighting shy of the precise term.

Russian food imports have risen steadily since the beginning of the decade. Last year, they cost the country more than 17bn.

With a weaker rouble, that imported food is going to cost more in the shops - at a time when inflation is already running at over 12%, and one opinion poll suggests that almost half of Russians are worried about losing their jobs.

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