Russian central bank hikes rates to fight inflation fueled by military spending in growing economy
Russia’s central bank has raised its key interest rate by a full percentage point to 19% to combat high inflation as government spending on the military strains the economy’s capacity to produce goods and services and drives up workers’ wages
MOSCOW — Russia's central bank raised its key interest rate by a full percentage point to 19% to combat high inflation as government spending on the military strains the economy's capacity to produce goods and services and drives up workers' wages.
The central bank said in a statement Friday that “growth in domestic demand is still significantly outstripping the capabilities to expand the supply of goods and services.” It held out the prospect of more rate increases to return inflation from the current 9.1% to the bank's target of 4% in 2025.
Russia’s economy continues to show solid growth despite sanctions from countries opposed to what the Kremlin calls a “special military operation” in Ukraine. Gross domestic product benefits from high levels of government spending, including for the military, with tax coffers bolstered by oil exports.
One result of government outlays is inflation, which the central bank has tried to combat with higher rates that make it more expensive to borrow and spend on goods, in theory relieving pressure on prices. So far it has been fighting a losing battle, and economists say that at some point tight credit may slow growth.
Rising wages and a strong jobs market have helped shoppers compensate for inflation and as a result “consumer activity remains high,” the central bank said.
The bank's policy rate is the highest since February 2022, when the central bank raised the rates to unprecedented 20% in a desperate bid to shore up the ruble in response to
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