Monday, December 15, 2014

How Did Russia Come Up With 17% as the Rate to which It Should Hike Interest Rates?

Top Russian central banker Elvira Nabiullina
Earlier today, I reported that the Russian central bank increased its key lending rate by an incredible 650 basis points, from 10.5% to 17.0%.

How did Russia's central bank pick 17.0%?

Perhaps it is just following in the footsteps of Paul Volcker, when he was fighting very rapid price inflation in the United States. The problem for Russia is more of a crash in the ruble on foreign exchange markets than domestic price inflation (though that is a problem) but the panic level is about the same. So why not raise rates to the general level that Volcker did after he took over at the Fed in August of 1979? Is this what top Russian central banker Elvira Nabiullina has chosen to do?

What ever her reason, it is a courageous and wise thing to do (next to getting out of the money manipulation business completely).

Keep in  mind that according to Bloomberg, she once named dropped Austrian economist Robert Higgs. (SEE: Did Putin Just Name an Austrian Economist to Head Russia's Central Bank?)

Here's the interest rate spike under Paul Volcker that killed near galloping price inflation in the US:


  1. Combined with Putin's recent rhetoric on capital amnesty, deregulation, and tax breaks for business startups, Moscow is certainly suggesting an early-Reagan-era vibe. Of course we all know how that turned out...

  2. 10 year UST touched 2.01% today. Rates won't rise anytime soon in the US.

  3. Wasn't von Mises in a similar position in Austria just before or after WWI? And wasn't he forced out? Good luck to Elvira Nabiullina, she is going to need it.