Central Bank of Russia has pushed up its key interest rate to almost 16% as the country fights accelerating inflation.
“Current inflationary pressures remain high. Annual inflation for 2023 is expected to be close to the upper bound of the 7.0–7.5% forecast range,” the Bank of Russia said in a statement on Friday explaining its decision.
Higher interest rates are designed to sap demand by making it more expensive to borrow money and encouraging consumers and businesses to save, not spend.
Analysts expected the increase as the central bank repeatedly stated its priority to fight inflation, which accelerated to 7.5% in November.
The Bank said it was anticipating “that tight monetary conditions will be maintained in the economy for a long period.”
The exchange rate is seen as a key barometer of Russia’s economic health by politicians, businesses and the population.
Central Bank chief Elvira Nabiullina said that Moscow’s economy was working “almost at full capacity,” warning of a risk of “overheating.”
“Business lending is showing early signs of slowing, but is still growing at a record pace,” she warned, as the bank is seeking to limit subsidized loads believed to be driving inflation.
The decision to raise the interest rate comes a week after Russian President Vladimir Putin announced plans to run in tightly-controlled polls in 2024 to stay in the Kremlin until at least 2030.
At his end-of-year press conference Thursday Putin hailed the 2.9% unemployment rate “at an all-time low,” calling it “a very good indicator of the state of the economy.”
But analysts say the low employment rate is not a healthy sign but instead shows a shortage of recruits, with various sectors struggling to fill posts.
The mobilization of hundreds of thousands of men took them off the job market, while prompting many of the most educated parts of the population to flee the country.
The lack of manpower is driving up wages, as employers are forced to offer more attractive salaries in order to recruit.
While this has created a cycle of rising wages and prices, a rapid rise in military spending has pushed the government into a deficit.
