Central Bank of Russia Photo: Getty images
The Central Bank of Russia (CBR) is considering another increase in the discount rate, which is currently at its highest level in two decades. This was stated on Wednesday by the head of the Central Bank Elvira Nabiullina, explaining that this step is necessary to combat high inflation, which remains at over 8.5% in the country, AFP reports.
“We have indicated that the Central Bank is considering raising rates,” Nabiullina said during a speech at a financial forum in Moscow. She noted that inflation has not yet begun to decline, despite expectations of a decline.
The next meeting of the CBR will be held on 20 December, and many economists are already predicting a hike in the key policy rate, which is currently 21%, the highest level since 2003.
Reaction of Russian business leaders
The decision to raise the interest rate again caused concern among Russian entrepreneurs. They warned that such an increase would further increase the cost of loans and investments, which could significantly slow down the country’s economy, as the authorities forecast a slowdown in economic growth by 2025.
However, Nabiullina dismissed these claims, saying that the central bank must take decisive action to curb inflation. “If we do not act now, citizens will believe that the authorities are unable to control this process, which is worsening their purchasing power,” she said. At the same time, Nabiullina supported the “slowdown in lending”, which is caused by high interest rates and should curb price growth.
Reasons for high inflation in Russia
Inflation in Russia is driven by several factors, including a significant increase in military spending due to the aggression against Ukraine, sanctions and higher wages. This is due to a shortage of labour, as many citizens have been mobilised to the frontline or left for other countries since the start of the war.
In addition, inflation is also affecting the ruble, which has reached its lowest level against the dollar and euro since March 2022, worsening the economic situation in the country.
Economic challenges for Russia due to international sanctions
The increase in the key policy rate and the economic difficulties faced by Russia are the result of international sanctions and increased military spending. The sanctions, together with internal problems and massive labour migration, are significantly exacerbating the economic crisis in Russia, which has a direct impact on the financial stability and purchasing power of citizens.
