Russia’s Central Bank Raises Interest Rate To 21% To Fight Inflation

Russia’s central bank has raised its key interest rate by two percentage points to a record-high 21% to combat rising inflation as government spending on the military strains the economy’s capacity to produce goods and services, the Associated Press (AP) reported.

The new interest rate is the highest in Russia since the dissolution of the Soviet Union in 1991.

The central bank stated that “growth in domestic demand is still significantly outstripping the capabilities to expand the supply of goods and services.”

Inflation, the statement continued, “is running considerably above the Bank of Russia’s July forecast,” and “inflation expectations continue to increase.” The central bank left open the possibility of further rate hikes in December.

Russia’s economy continues to grow, bolstered by ongoing oil export revenues and government spending on goods, including for the military.

This has contributed to inflation, which the central bank has sought to curb through higher interest rates, theoretically reducing borrowing and spending, and thus relieving pressure on prices.

The new interest rate is the highest in Russia since the dissolution of the Soviet Union in 1991.

The previous peak occurred in February 2022, when the central bank raised rates to 20% in an attempt to stabilize the ruble following the imposition of sanctions in response to the Kremlin’s military actions in Ukraine.