Russia's central bank is anticipated to increase interest rates further to combat inflation fueled by the war economy. While the bank's efforts to control inflation are facing criticism for stifling business, policymakers are struggling to balance competing priorities.
Russia’s central bank is expected to raise its key interest rate beyond its record of 21 per cent on Friday, as policymakers struggle to tame inflation in what Vladimir Putin described as an “overheating” war economy. Elvira Nabiullina, the hawkish governor of Russia’s central bank, the CBR, is facing an increasingly loud chorus of criticism from officials and oligarchs who say her efforts to rein in inflation are stifling business.
Her persistence in rising rates even as inflation is sliding out of the bank’s control highlights how policymakers have failed to balance irresolvable priorities during the war, according to senior Russian businessmen and economists. “Either you have enormous spending, or a stable foreign exchange rate and a market economy,” a former senior energy executive said. “You have to sacrifice one of those. You can’t have it all at once.” Demand is persistently outpacing supply, and the central bank has a limited toolkit beyond high interest rates to address inflation amid low unemployment and weak productivity. Many economists forecast inflation as high as 10 per cent by the end of 2024, driven by the splurge on defence spending and a corresponding boom in the consumer sector. The CBR estimates annual inflation at 9.6, far beyond its target of 4 per cent. The rouble has slid about 20 per cent since summer lows to trade at about 103 to the dollar, hit by sanctions limiting Russia’s energy exports and ability to transact internationally. Unemployment is hovering around just 2.3 per cent as defence manufacturers work in three shifts around the clock, paid by ever-growing budget spending, and the civilian sector struggles to keep up. The economy was receiving “far more money than it can ‘digest’,” the CBR acknowledged in its latest report from early December
RUSSIA ECONOMY INFLATION INTEREST RATES WAR
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