(CTN News) – To combat rising inflation, Russia’s central bank has once again raised its key interest rate to 16 percent. This marks the fifth increase since the summer.
The bank has been facing economic challenges due to the ongoing conflict in Ukraine, which has resulted in Western sanctions, increased government military spending, and the mobilization of a large number of men.
The Bank of Russia stated that current inflationary pressures remain high and that they expect annual inflation for 2023 to be close to the upper limit of the forecast range of 7.0-7.5 percent.
By raising interest rates, the central bank aims to reduce demand by making borrowing money more expensive, thereby encouraging individuals and businesses to save rather than spend.
This move was anticipated by analysts, as the central bank has consistently emphasized its commitment to combating inflation, which reached 7.5 percent in November.
The Bank has stated its expectation that the economy will continue to experience tight monetary conditions for an extended time.
The exchange rate is considered a crucial indicator of Russia’s economic well-being by politicians, businesses, and the general population.
Elvira Nabiullina, the head of the central bank, has emphasized that Moscow’s economy is operating at nearly full capacity and has warned of the risk of overheating. She has also expressed concern about the rapid growth of business lending, even though there are early signs of a slowdown, as the bank aims to limit subsidized loans that are believed to be contributing to inflation.
The decision to raise the interest rate comes shortly after Russian President Vladimir Putin announced his plans to participate in tightly controlled elections in 2024, to remain in the Kremlin until at least 2030.
During his end-of-year press conference, Putin praised the unemployment rate of 2.9 percent as an all-time low and a positive indicator of the state of the economy.
However, analysts argue that the low unemployment rate is not necessarily a positive sign, but rather reflects a shortage of available workers, with various sectors struggling to fill job vacancies.
The mobilization of hundreds of thousands of men for military service has further exacerbated this issue, leading to a significant brain drain as many highly educated individuals choose to leave the country.
The shortage of manpower has resulted in increased wages, as employers are compelled to offer more attractive salaries to attract workers. While this has created a cycle of rising wages and prices, the government is also facing a budget deficit due to a substantial increase in military spending.