Russia's central bank raises interest rates to curb war-time inflation

The Bank of Russia has raised interest rates for the fifth consecutive time, increasing them from 15% to 16%. This move is part of the Kremlin's efforts to control inflation amidst the ongoing war with Ukraine. The interest rate hike is the highest level since April 2022 and is aimed at cooling inflation.

According to the central bank, this latest adjustment is expected to slow down annual inflation to 4%-4.5% in 2024 from the projected range of 7%-7.5% for 2023. The bank stated that maintaining tight monetary conditions will be necessary for a prolonged period to achieve the target inflation rate.

Elvira Nabiullina, the governor of the Bank of Russia, mentioned that the depreciation of the ruble is having a diminishing impact on inflation and that the pass-through from the exchange rate to consumer prices is almost over. However, she noted that strong demand continues to put pressure on service costs.

Despite facing sanctions from the West due to the war with Ukraine, Russia's defense spending and energy exports have helped keep the economy afloat. However, inflation has been exacerbated by a tight labor market resulting from the military's mobilization of more troops and an increase in emigration from Russia.

Nabiullina also commented on the domestic economic situation, stating that economic growth is moving in the right direction and unemployment reached an all-time low of 2.9% in October. However, she cautioned that geopolitical risks and a potential global economic slowdown could impact the demand for commodities, affecting the dynamics of the ruble exchange rate.

She further warned that an expansion of subsidized lending programs could lead to additional inflationary pressure and potentially require higher interest rates for a longer period.

Overall, the Bank of Russia's decision to raise interest rates reflects its ongoing efforts to control inflation amidst the war with Ukraine and fluctuating economic conditions. The central bank aims to achieve its target inflation rate by maintaining tight monetary conditions, although external factors such as geopolitical risks and global economic trends could pose challenges in the future.


More from Press Rundown