Russia's central bank has decided to keep its benchmark interest rate at 21% in an effort to combat rising inflation driven by the government's expenditures on the conflict in Ukraine. This decision comes amidst criticism from influential business figures who argue that the high rates are hindering economic activity.
Factories in Russia are operating at full capacity, producing a wide range of goods for military purposes, leading to a labor shortage and increased wages. Additionally, the depreciation of the Russian ruble has resulted in higher prices for imported goods from China, Russia's main trading partner due to Western sanctions.
While high interest rates can help curb inflation, they also make it more costly for businesses to access credit for operations and investments. Critics of the central bank's policies, including prominent figures like the head of Rostec and a steel magnate, have voiced their concerns.
President Vladimir Putin remains optimistic about the economy, projecting a growth rate of nearly 4% for the year. He acknowledged the challenges posed by inflation but highlighted that wages have also increased in tandem. Putin noted that the situation is stable despite some experts suggesting that the central bank could have acted more decisively.
Central bank Governor Elvira Nabiullina emphasized that while the economy is expanding, the surge in prices indicates a demand surpassing the economy's capacity. Russia's military spending is supported by oil exports, which have shifted towards new markets like India and China, bypassing certain sanctions.
