Support The Moscow Times!

Russia Hikes Interest Rates Again, Warns of ‘Overheating’ Economy

MT

Russia’s Central Bank raised interest rates by a full percentage point to 9.5% on Friday in its latest attempt to tame surging inflation and prevent the economy from “overheating.”

The hike is the second time in a row the regulator has made the rare move of increasing its key rate by a full point, and the eighth consecutive rise. It takes borrowing costs to their highest level in five years.

Amid an otherwise strong recovery from the coronavirus recession, Governor Elvira Nabiullina warned that Russia’s economy is overheating and inflation could spiral out of control.

“If we take no measures to drive the economy back to a balanced growth path, the overheating will increase, causing an uncontrollable acceleration of inflation and a subsequent slowdown of economic growth, or even a recession,” she said, adding that “geopolitical risks” — code for Russia’s standoff with the West over Ukraine — were also exacerbating the situation.

The Central Bank’s aggressive attempt to stem rising prices across the economy followed an 8.7% year-on-year increase in inflation in January, the highest yet recorded since a period of rapid price rises began 20 months ago. The largest contributor to surging consumer prices was the cost of food, which has risen by 11.1% over the last year, according to Russia’s federal statistics agency.

The Bank warned inflation will take longer than expected to return to the country’s 4% target — a level Nabiullina said would not be reached before the middle of 2023.

Nabiullina also said that the Central Bank has no plans at the moment to resume its regular purchases of foreign currency, following its decision to suspend the purchases — of up to $500 million a day — amid a rapid depreciation of the Russian ruble last month.

Under what is known as the “fiscal rule,” the government typically buys foreign currency using oil and gas revenue in order to shield the ruble from volatility stemming from fluctuating commodity prices. Nabiullina gave little indication as to when the purchases, which are mandated under Russian law, will resume.

The regulator told markets to expect further rate increases in the coming months, and stressed that these would take time to have the desired effect of reining in inflationary pressures across the economy. 

Nabiullina also called on banks to raise rates on savings and deposit accounts, saying this would help bring down public concerns about rising prices, which Russians say is the biggest problem facing the country.

Sign up for our free weekly newsletter

Our weekly newsletter contains a hand-picked selection of news, features, analysiss and more from The Moscow Times. You will receive it in your mailbox every Friday. Never miss the latest news from Russia. Preview
Subscribers agree to the Privacy Policy

A Message from The Moscow Times:

Dear readers,

We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."

These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.

We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.

Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.

By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.

Once
Monthly
Annual
Continue
paiment methods
Not ready to support today?
Remind me later.

Read more