A historic tightening of the screws: the Russian Central Bank (BCR) announced on Friday to raise its key rate from 19 to 21%, its highest level since 2003, in an attempt to contain high inflation which is not decreasing in Russia.
“A further tightening of monetary policy is necessary to ensure the return of inflation to the objective (of 4%, editor’s note),” the BCR indicated in a press release.
Speaking to the press, the director of the BCR, Elvira Nabioullina, deplored that, despite restrictive measures, there is “no sign of slowing down” in the rise in prices.
“We will need much tighter monetary policy over the next year,” she warned.
The last high dates back to the period between the end of February and the beginning of April 2022, when the Russian monetary institution urgently raised its key rate to 20%, to protect the country's economy in the face of the avalanche of Western sanctions. taken in retaliation for Moscow's assault on Ukraine.
“The situation is different today,” however, noted Ms. Nabioullina, who reiterated that she wanted to do everything to achieve a lasting drop in inflation, which is weighing down the purchasing power of Russians.
Inflation, driven by the surge in public spending aimed at supporting the offensive in Ukraine, reached 8.63% year-on-year in September, according to official figures.
For the first time, the BCR recognized on Friday that inflation would be above the target of 4% in 2025 (“between 4.5 and 5%”).
– “Respect your budget” –
The explosion in public spending, linked to orders from the military-industrial complex to equip the Russian army in Ukraine, has fueled a cycle of rising wages and household spending for several months.
The federal budget has increased by almost 50% since 2021, with billions of euros going to the army, soldiers, their families and arms companies, allowing the economy to withstand sanctions, while still pulling daily prices on the rise.
Without directly mentioning the conflict, Ms. Nabiullina, who regularly opposes Finance Minister Anton Silouanov, deplored the explosion in federal spending.
“Respecting the budget” is “a very important factor” in limiting “overheating” of the economy, she insisted to journalists.
However, Russian deputies voted on Thursday for a 30% increase in the Defense budget in 2025, which could further fuel this inflationary spiral, despite a tax reform expected on January 1 to relieve federal finances.
– Setback at the top of the Brics –
The assault ordered by Russian President Vladimir Putin against Ukraine has raised fears for the prosperity of Russia, whose economy has largely relied since coming to power in 2000 on budgetary revenues from the sale of hydrocarbons. and an opening towards the European market.
Before that, the 1990s had been marked by significant economic and political instability, culminating in a major financial crisis in 1998.
Although the national economy has held up well since February 2022, problems persist.
Labor shortages, a direct consequence of the departure of hundreds of thousands of men to the front or abroad, “limit” growth, according to Mr. Putin's own admission.
The Russian head of state noted Thursday, during the Brics summit in Kazan, that “one of the main problems” concerned payments between Russia and its international partners, due to the reluctance of many foreign banking establishments which no longer accept, or with a certain delay, payments in rubles, for fear of secondary American sanctions.
A hard blow for Mr. Putin, who wants to escape from the domination of the dollar in trade. He also said he was abandoning, at this stage, plans to create a single currency common to the Brics member countries (an “idea not yet mature”, he admitted) and an alternative international payment platform. to Swift, from which the main Russian banks were excluded in 2022.
In this context, some observers anticipate, in the medium term, a pessimistic scenario of stagflation in Russia – when the economy suffers from high inflation and very weak growth.
In the meantime, the International Monetary Fund (IMF) has revised its growth forecasts for Russia upwards at the end of the year, to +3.6%, before a deceleration expected in 2025.
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