The Central Bank of Russia (CBR) has raised its key interest rate by 100 basis points to 16% per year, the fifth consecutive rate hike as policymakers in the Eurasian nation seek to rein in persistent inflation that has far exceeded their target.
“Current inflationary pressures remain high. Based on the 2023 outcome, annual inflation is expected to be near the upper end of the forecast range of 7.0–7.5 percent,” the CBR said in a statement on December 15.
The CBR also warned that “returning inflation to target by 2024 and stabilizing it at around 4%” would require maintaining strict fiscal policies for a long time.
“At the same time, the CBR expects GDP growth in 2023 to be higher than the October forecast, and exceed 3%,” the statement added. The CBR’s next important interest rate meeting will be held on February 16 next year.
Speaking at a press conference in Moscow after the rate hike, CBR Governor Elvira Nabiullina said persistent inflation showed the economy was not keeping up with growing demand and that inaction would be harmful.
“Imagine the economy as a car, if we try to drive faster than the car is designed to and press the accelerator as hard as we can, the engine will soon overheat,” said Nabiullina. “We can still drive fast, but it won’t last long.”
Russian President Putin speaks during a question-and-answer session combined with a year-end press conference on December 14, 2023. Photo: Sputnik
The CBR last raised its key interest rate on October 27, from 13% to 15%. Interest rates in Russia reached their highest level in recent years in February 2022, raised from 9.5% to 20% after Russian President Vladimir Putin launched a “special military operation” in Ukraine.
The base rate was then cut gradually to 7.5% before the CBR began raising rates in July this year. Persistent inflationary pressures, exacerbated by a sharp weakening of the ruble earlier this year, as well as labour shortages, high government spending and lending, pushed rates to 15% and now 16%.
Inflation and high interest rates are among the challenges facing Russia's economy as President Putin prepares for a presidential election in March next year, although Moscow's success in evading Western oil price caps is helping to spur a recovery in economic growth and ease current pressures.
One manifestation of inflation was clearly shown through Mr Putin's rare apology when a pensioner complained to him about the price of eggs.
During the Direct Line Q&A session combined with the Russian leader's year-end press conference with domestic and international media as well as the public from across the country on December 14, retired Irina Akopova was seen sitting at her kitchen table talking to President Putin via video link.
She complained that the prices of eggs, chicken breasts and chicken wings had all skyrocketed and begged the Russian leader to address the situation. “Solve this problem. We have no one to turn to. I am very grateful to you, I am counting on your help,” Akopova said.
A customer holds a carton of eggs at a store in Moscow, Russia, on December 11, 2023. Egg prices in Russia have risen by more than 40%. Photo: Getty Images
The question reflects Russians' real concerns about the cost of living and comes after Mr Putin admitted that inflation could hit 8% this year.
“I apologize for this, but this is a failure of the government's work… I promise that the situation will be corrected in the near future,” Mr. Putin said.
The Direct Line Q&A session is a way for Mr Putin to show that he sympathizes with the concerns of ordinary people and is ordering relevant officials to address them.
The Russian government said this week it would exempt 1.2 billion eggs from import duties in the first half of next year to try to rein in prices for the commodity, which have risen more than 40% this year .
Minh Duc (According to Reuters, Meduza, Xinhua)
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