“Moscow has not finished paying the price for its “special operation” in Ukraine”

Sf the Russian army has recorded its strongest advance in Ukrainian territory since the start of the conflict in recent weeks, on the economic front, the news is more worrying for Moscow. The narrative methodically maintained by the authorities according to which Western sanctions would have only limited effectiveness and growth would flourish is becoming less and less credible. The noose of embargoes and international restrictions, despite attempts to circumvent them, is indeed slowly asphyxiating the Russian economy. As for the war effort made by Vladimir Putin, it weighs heavily on the country’s budgetary resources, threatening its economic stability.

Until recently, Moscow had managed to maintain the illusion of unexpected resilience. After all, the dire predictions made at the start of the war proved false. Not only has growth held up, but thanks to a military-industrial complex operating at full capacity, national production has accelerated and unemployment has never been lower. But if we want to understand what is currently happening in Russia, it is better to look at inflation and the monetary policy pursued by the Central Bank of Russia (CBR).

The growing nervousness in Russian economic circles is unmistakable. They have their eyes fixed on interest rates, which reached an exorbitant rate of 21% at the end of October, unheard of in more than twenty years. From now on, the president of the institution, Elvira Nabioullina, is accused of all evils by business leaders. Their acrimony is understandable. With such high interest rates, it becomes complicated to invest because finding projects that generate profitability higher than key rates has become mission impossible.

Russian Railways, the country’s largest employer, will reduce its investments by a third for 2025. The situation is all the more worrying for Russian companies as more than half of their debt is at variable rate. Many are having increasing difficulty meeting their repayments, announcing serial bankruptcies. As for real estate, the government no longer has the means to subsidize loans to allow individuals to continue to borrow. The speculative price bubble that has soared in recent years threatens to burst.

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