Russian central bank hikes key interest rate to record 21% to tame inflation boosted by massive military spending
- Central bank governor Elvira Nabiullina said inflation is expected to double the bank's target of an annual 4%
Russian central bank on Friday hiked its key interest rate to a record high 21% in an effort to tame growing inflation, boosted by massive government spending on the military amid the Ukraine war. It raised the rate by 2 percentage points.
“Growth in domestic demand is still significantly outstripping the capabilities to expand the supply of goods and services,” the central bank said in a statement.
Central bank governor Elvira Nabiullina said that inflation is expected to double the bank's target of an annual 4% and emphasized that the bank remains committed to bringing it down to the targeted level.
The Inflation has overshot the goals because of increased government spending and lenient banking regulations that encouraged commercial banks to offer more loans. Years of price growth that exceeded the targets have fueled high inflationary expectations among consumers, she added.
“There is a high inertia of inflationary expectations as the inflation has exceeded the target level for four years,” Nabiullina said. “The more inflation exceeds the targets, the less people and companies believe that it could fall back to low levels.”
The Russian economy continues to show growth as a result of booming oil exports and a hike in government spending, the bulk of which goes to the military as the conflict in Ukraine has dragged into a third year.
That has fueled 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.
Russia’s economy grew 4.4% in the second quarter of 2024, with unemployment low at 2.4%.
Government revenues are supported by economic growth and by continuing exports of oil and gas with less-than-airtight sanctions and a $60 price cap imposed by Western governments on Russian oil. The cap is enforced by barring Western insurers and shippers from handling oil priced over the cap. But Russia has been able to evade the price cap by lining up its own fleet of tankers without Western insurance, and it earned some $17 billion in oil revenues in July.
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Business NewsEconomyRussian central bank hikes key interest rate to record 21% to tame inflation boosted by massive military spending
First Published:25 Oct 2024, 09:24 PM IST
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