Some Russian elites are challenging the Russian central bank's potential interest rate hike to 18%. Russia's key interest rate currently stands at 16% after a series of hikes aimed at taming elevated inflation and managing the country's wartime economy. However, certain critics argue that such high interest rates are stifling lending and business activities.
Several influential Russian individuals have publicly pushed back against the central bank's signal that it is likely to raise rates further on Friday. Igor Sechin, the CEO of the state-owned oil giant Rosneft, pointed to recent interest rate cuts in China, suggesting that Russia should follow suit. "We hope for similar steps for Russian prime borrowers from the Bank of Russia," Sechin stated, according to a Reuters translation.
This is not the first time Sechin has complained about the high interest rates, as he has previously argued that they are hindering borrowing and stifling business. Sechin has now found an ally in Anatoly Aksakov, the head of Russia's lower house of parliament's banking committee. Aksakov stated, "We need relatively cheap credit to come to the economy. We need structural change," adding that price rises have slowed slightly and that annual inflation would decline in the second half of 2023.
Even an influential Russian think tank, the Center for Macroeconomic Analysis and Short-Term Forecasting, has criticized the central bank's actions. Dmitry Belousov, the head of the think tank, said that the central bank is "forcing stagnation" onto the economy with its high interest rates and that "negative and systemic risks from such an action are likely to outweigh the positive effects."
The debate over the central bank's potential rate hike highlights the tensions within Russia's wartime economy. While the central bank's primary goal is to rein in inflation and stabilize the financial system, some business leaders and policymakers are concerned that the high interest rates are stifling economic growth and limiting access to credit. As the central bank prepares to make its decision on Friday, the outcome will be closely watched as it could have significant implications for Russia's economic trajectory in the coming months.
Infighting with central bank governor
In the aftermath of its invasion of Ukraine in late February 2022, Russia has faced sweeping economic sanctions. However, contrary to expectations, the Russian economy has managed to avoid a complete collapse and has even shown signs of resilience. This resilience is largely driven by wartime activities and services, as well as government subsidies for mortgages and businesses.
Despite the sanctions, Russia's economy posted a 3.6% GDP growth in 2022, and the unemployment rate reached a record low of 2.6% in April. This can be attributed to men heading to the front lines and a brain drain, which has contributed to rising wages and price gains. Russia's annual inflation rate remains high, around 9.2%, as the country's wartime economy continues to run at a rapid pace.
The performance of the Russian economy has not been without its challenges. There has been infighting within the country's top echelons, with the Russian central bank governor, Elvira Nabiullina, facing criticism over the weak ruble. However, Nabiullina has been at the helm of the central bank for over a decade and is said to be trusted by President Vladimir Putin. She has managed to steady the economy and survive the high-level reshuffles.
Looking ahead, Russia's inflation rate is expected to remain high this year and the next, indicating that monetary policy is likely to stay tight, with high interest rates, "until substantial disinflation takes hold," according to financial services company Allianz.
Overall, the resilience of the Russian economy in the face of sweeping sanctions has been a surprising outcome, and the country's ability to maintain its economic footing amid the ongoing conflict will continue to be a closely watched development.
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