Russian Central Bank Hikes Key Rate To Fight Inflation

Russia's central bank raised its key interest to 18 percent on Friday, the sixth hike in just over a year as it seeks to tame soaring price rises

Moscow, (UrduPoint / Pakistan Point News - 26th Jul, 2024) Russia's central bank raised its key interest to 18 percent on Friday, the sixth hike in just over a year as it seeks to tame soaring price rises.

Prices have risen fast since Moscow launched its full-scale offensive in Ukraine in February 2022, as massive government spending and skyrocketing wages have pushed up demand across the economy.

"Inflation has accelerated and is running substantially above the Bank of Russia's April forecast," the regulator said in a statement. The rate was previously at 16 percent.

"The growth of domestic demand continues to significantly outpace the ability to expand the supply of goods and services. In order for inflation to begin to decline again, additional tightening of monetary policy is required," it added.

The bank also revised up its inflation forecast for 2024 to 6.5-7 percent.

According to President Vladimir Putin, Russia is set to spend almost 9 percent of its GDP on defence and security this year, a figure unprecedented since the days of the Soviet Union as the country ramps up arms production to fight in Ukraine.

That surge in public expenditure, combined with record labour shortages in many sectors, has created an inflationary spiral that Russia has been unable to shake off.

Moscow's federal budget has jumped almost 50 percent over the last three years -- from 24.8 trillion rubles ($289 billion) in 2021, before the Ukraine offensive, to a planned 36.6 trillion rubles ($427 billion) this year.

Since so much spending is being directed by the state, which is less responsive to higher borrowing costs, analysts fear interest rate rises may not be an effective tool against inflation.

Consumer prices are a sensitive topic in Russia, where many people have virtually no savings and memories of hyperinflation and economic instability run deep.

The Kremlin said Thursday it was concerned by high levels of inflation and that "measures" were being implemented to tackle the problem.