Russia: Russia sharply raises interest rates as wartime financial problems pile up

The Russian central bank on Tuesday raised interest rates by the most it had since the early weeks of the war in Ukraine, a dramatic move that underlines the scale of concern about Russia‘s economic stability.

By announcing an emergency meeting with one day’s notice, the central bank had signalled that it is prepared to act aggressively to stem rising prices and a weakening currency. Tuesday’s move, a 3.5-percentage-point increase in the benchmark rate, to 12%, was the bank’s second attempt to cool down the economy in less than a month, after a one-point increase on July 21.
The rouble has lost about a quarter of its value since the start of the year as heavy government spending fuels inflation in goods and services cost. The national currency briefly slipped past the symbolically important exchange rate of 100 to the dollar on Monday, but has been strengthening modestly against the dollar since the central bank announced its meeting.

The central bank implied that the government’s huge spending increase since the start of the war had outstripped the Russian economy’s ability to produce enough products to meet the new demand, which “amplifies the underlying inflationary pressure,” it said. This has compelled individuals and businesses in Russia to look abroad for everything from smartphones to military-grade semiconductors, pushing up imports and weakening the rouble. Annual inflation has averaged over 7% in the past three months, the central bank said in a statement, a major deviation from its target of 4%.