Russia’s War-Torn Economy Hits Its Speed Limit
reality for the Kremlin: Russia’s economy has reached its speed limit. The government has flooded the Russian economy with money to keep its troops in Ukraine supplied and insulate its businesses and citizens from the war. Thanks to the state’s largess, demand in the economy is rising, helping it recover from last year’s sanctions-induced recession.
Supply—increasingly constrained by Russia’s isolation and widespread labor shortages—isn’t. That growing imbalance of Russia’s wartime economy was thrust into focus this week as the ruble fell to its lowest level since the early days of the war. A senior Kremlin official blamed the currency drop on loose monetary policy.
A day later, Russia’s central bank hiked interest rates by 3.5 percentage points at an emergency meeting, citing the need to stabilize the currency and bring down inflation, which it said has been growing at an annualized rate of 7.6% over the last three months. The ruble has staged a rebound, with $1 now buying roughly 94 rubles compared with as much as 102 on Monday. Economists see this week’s volatility not as the beginning of an imminent financial crisis but rather as a symptom of Russia’s sclerotic economic prospects.
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