Source: AFP
Russia’s central bank on Friday raised its key interest rate to 16 percent, announcing the fifth hike since the summer in a bid to combat accelerating inflation.
The central bank is grappling with the economic fallout from the attack on Ukraine that includes Western sanctions, increased government military spending and the call-up of hundreds of thousands of troops.
“Current inflationary pressures remain high. Annual inflation for 2023 is expected to be near the upper end of the forecast range of 7.0-7.5%,” the Bank of Russia said in a statement explaining its decision.
Higher interest rates are designed to reduce demand by making it more expensive to borrow money and encouraging consumers and businesses to save rather than spend.
Analysts had expected the increase as the central bank has repeatedly said its priority is to fight inflation, which accelerated to 7.5% in November.
![](https://images.yen.com.gh/images/default.jpg?impolicy=cropped-image&imwidth=256)
![](https://images.yen.com.gh/images/default.jpg?impolicy=cropped-image&imwidth=256)
Read also
Bank of England keeps interest rate on hold, warns of inflation
The Bank said it expects “tight monetary conditions to persist in the economy for a long time.”
The exchange rate is considered a key barometer of Russia’s economic health by politicians, businesses and the population.
Central Bank chief Elvira Nabiulina said Moscow’s economy was operating “almost at full capacity”, warning of the risk of “overheating”.
“Business lending is showing early signs of slowing but is still growing at a record pace,” he warned, as the bank seeks to curb subsidized loads believed to be driving inflation.
The rate hike decision comes a week after Russian President Vladimir Putin announced plans to run in tightly controlled polls in 2024 to remain in the Kremlin until at least 2030.
At his end-of-year press conference on Thursday, Putin hailed the 2.9 percent unemployment rate “at an all-time low,” calling it a “very good indicator of the state of the economy.”
![](https://images.yen.com.gh/images/67931b475c35b93e.jpg?impolicy=cropped-image&imwidth=256)
![](https://images.yen.com.gh/images/67931b475c35b93e.jpg?impolicy=cropped-image&imwidth=256)
Read also
BoE pauses, ECB expected to follow as rate cut pressure mounts
However, analysts say the low employment rate is not a healthy sign, but instead shows a lack of hiring, with various industries struggling to fill positions.
The mobilization of hundreds of thousands of men took them out of the labor market, while prompting many of the more educated sections of the population to leave the country.
Labor shortages drive up wages as employers are forced to offer more attractive wages to recruit.
While this has created a cycle of rising wages and prices, rapid growth in military spending has pushed the government into deficit.
Source: AFP