Russia kept the interest rate unchanged at a record level of 21 percent. The country’s central bank announced the decision on Friday (December 20). Russia has refrained from raising interest rates further despite the rise in consumer inflation caused by the Ukrainian war. The American news agency AP reported the news.
The decision came amid criticism from influential businessmen and billionaires in the country who are close to the Kremlin. They said that high interest rates have a negative impact on business activities and the economy.
The decision also highlighted the tension in the country’s economy between military spending and maintaining price stability for ordinary consumers.
The country’s central bank governor, Elvira Nabiullina, said that due to the increase in interest rates in October, companies are under greater pressure to borrow. They left the door open to the possibility of raising interest rates at the next meeting. They expect inflation to fall to 4 percent annually next year from 9.5 percent currently.
Russian factories now operate in three shifts. Everything from vehicles to military clothing is made there. On the one hand, wages are increasing due to labor shortages, and on the other hand, many rubles are delivered to people’s accounts in the form of attractive bonuses for joining the army. For these reasons, its price increases in the market.
In addition, the depreciation of the Russian currency, the ruble, led to higher prices for imported goods. As a result, the prices of goods such as cars and consumer electronics imported from China, Russia’s largest trading partner, are rising. Trade relations between Russia and China have become closer as economic relations with Europe and the United States have been disrupted by Western sanctions.
Russia manages its military expenditures through oil export revenues. New buyers such as India became the destination for Russian oil after the European embargo. On the other hand, India and China do not adhere to restrictions on Russian oil, such as the $60 per barrel price limit.
High interest rates temporarily control inflation, but make borrowing and investing more expensive for businesses. The central bank also pursued other approaches last month to curb inflation, such as imposing stricter credit standards and regulatory conditions on banks.
In this regard, one analyst said, whether this approach is successful or not, we will see next year. But for now, the central bank has managed to keep interest rates unchanged, which has pleased industrialists, politicians and even President Putin.
The central bank is scheduled to hold its next policy meeting on February 14.