Due to sharp price increases brought on by Moscow’s Ukraine offensive, Russia’s central bank raised interest rates to 21% on Friday, making borrowing more expensive than it has been in almost two decades.
As the regulator fights to stop the conflict’s economic effects, the increase brings prices to their highest level since 2003 and above an emergency level that was implemented in February 2022, shortly after Moscow ordered soldiers into Ukraine.
In a statement announcing the rise, the bank stated that “more monetary policy tightening is necessary to ensure the return of inflation to the target and reduce inflation expectations.” It warned it could raise rates again and squarely blamed inflation on rising government spending without mentioning the Ukraine offensive.
The report stated that the growth of the federal budget deficit in 2024 and further fiscal spending have pro-inflationary implications.
Alongside a sharp rise in spending on the Ukraine offensive, which has led to a labor shortage throughout the economy, inflation has skyrocketed. In September, yearly price increases were 8.6 percent, more than twice the government objective of 4.0 percent.
In another indication that Moscow will not cut back on its spending on the offensive, which is already in its third year, any time soon, Russian lawmakers voted Thursday to raise defense expenditures by about 30% next year.
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