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Russia anticipates a substantial interest rate increase as concerns mount over its struggle to control inflation in its war-oriented economy. Despite repeated efforts by the central bank to curb price surges through rate hikes, the consumer price index continues to climb.
In November, it reached 8.9% year-over-year, up from 8.5% in October, primarily due to escalating food costs.
The ruble’s depreciation, following new U.S. sanctions in November, has exacerbated inflationary pressures by increasing import expenses for Russia, whose economy has suffered significantly since its 2022 invasion of Ukraine.
Analysts predict the Central Bank of Russia (CBR) will raise rates by 200 basis points on December 20, potentially bringing the key interest rate to 23%. Liam Peach from Capital Economics suggests that inflation could exceed 9.0% year-over-year by the end of 2025, indicating a potential loss of control over price stability.
The CBR implemented a 200 basis point rate increase in October, citing inflation rates “considerably above” summer forecasts and rising inflation expectations. The bank noted that domestic demand growth was outpacing the supply of goods and services.
Russian consumers are particularly affected by steep price increases in essential foodstuffs. The ongoing conflict with Ukraine has led to labour and supply shortages, driving up wages and production costs, which are then passed on to consumers. While the government attributes the high cost of living to sanctions imposed by “unfriendly” countries, President Putin has denied prioritising military spending over consumer goods.
The International Monetary Fund forecasts 3.6% growth for Russia in 2024, followed by a deceleration to 1.3% in 2025, anticipating reduced labour market tightness and slower wage growth.
The ruble experienced a sharp decline against the dollar in November, reaching its lowest point since March 2022, following U.S. sanctions targeting Gazprombank. This prompted the CBR to intervene in the currency market. Putin downplayed concerns and attributed the fluctuations to various factors including seasonal trends.