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Russia central bank holds off rate hike after criticism

December 20, 2024 / 4:02 PM
Russia central bank holds off rate hike after criticism
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Sharjah24 – AFP: Russia's central bank kept interest rates at 21 percent on Friday despite surging inflation, a surprise decision that follows criticism from the country's political and business elite over the effects of higher borrowing costs on the economy.

Sharjah24 – AFP: Russia's central bank kept interest rates at 21 percent on Friday despite surging inflation, a surprise decision that follows criticism from the country's political and business elite over the effects of higher borrowing costs on the economy.

Moscow has struggled to rein in inflation, which has soared in the wake of Moscow's almost three-year Ukraine offensive.

Prices are rising fast across the Russian economy, pushed up by massive government spending on the military campaign and deep labour shortages.

President Vladimir Putin called inflation "worrying" in an end-of-year press conference on Thursday but said the sanctions-hit economy was stable.

Most economists had expected a hike to be announced Friday, but the bank appeared to have headed to harsh criticism by Russian business and political establishment, most of which does not want to see rates go up any more.

The unexpected move "sparks a lot of questions about the central bank's reaction function -- and whether it may be starting to become subject to political pressure", said Liam Peach, senior emerging markets economist at London-based research group Capital Economics.

The central bank has hiked rates aggressively over the last 18 months in the face of a slumping currency and stubborn price rises.

Despite elevate price growth, the bank said in a statement Friday it "estimates that inflationary pressures will begin to decline in the coming months under the impact of tight monetary conditions and the cooling of lending activity".

Annual inflation is estimated to have increased to 9.5 percent as of December 16, more than twice the government's four-percent target.

Putin hailed Russia's economic "stability" in the face of "external threats" on Thursday.

"The thing that is unpleasant and bad is the rise in prices. But I hope that if macroeconomic indicators are maintained, we will be able to cope with it," Putin said.

'Unpleasant'

The Russian economy is facing a cocktail of headwinds as its offensive on Ukraine nears the three-year mark.

Alongside high inflation and labour shortages, Western sanctions have sent the value of the ruble plunging and growth is set to slow next year.

That has raised concerns about the possibility Russia could see a period of stagflation -- low growth and high interest rates -- something economists see as tricky for policy makers to deal with.

High interest rates have so had only limited impact in bringing down prices, but have triggered a backlash among borrowers and businesses.

"The economy can't survive like this for long," German Gref, CEO of Russia's largest lender, state-run Sberbank, said this month.

Even Putin's closest allies have complained.

Sergei Chemezov, head of the Rostec military-industrial conglomerate and a close friend of the president, described interest rates of more than 20 percent as "madness".

Putin had on Thursday refrained from explicitly advising the central bank whether to raise rates, saying only that he hopes the decision will be "balanced and meet the demands of today".

The central bank had earlier predicted a sharp slowdown in growth next year -- to below 1.5 percent, from over 3.5 percent this year.

The bank's next key rate meeting is set for February 14, it said, days before the third anniversary of Moscow's Ukraine offensive.

December 20, 2024 / 4:02 PM

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