Russian Bank delivers an unexpected potent move. Russians' wallets will feel it
Russia is currently in a cycle of interest rate hikes, primarily due to efforts aimed at strengthening the ruble and subsequently curbing inflation. On Friday, the central bank made a more severe move than anticipated toward Russian borrowers. The indicators suggest that this trend is likely to continue.
Amid the illegal invasion of Ukraine, Russia has been withholding a significant amount of its economic data. While it's challenging to accurately gauge the inflation rate, it's evident that it's escalating – in spite of authorities freezing the prices of essential goods. It's increasing at a much higher rate than President Vladimir Putin would prefer, despite his declaration that combating escalating costs is a "priority".
According to official reports, the rate of inflation in Russia sits at 6.59% (the target being 4%). However, Russian consumers seem to be experiencing a surge in goods and services prices, with an estimated increase of 12%. The depreciating ruble isn't aiding in slowing down the escalating costs, even though recent regulatory decrees have seen it gain some ground against the dollar.
Actions by the Central Bank of the Russian Federation indicate symptoms of concern from a Kremlin standpoint. It was anticipated that the key interest rate would receive its fourth consecutive hike on October 27, but the magnitude of the increase caught the market by surprise.
Key interest rate in Russia climbs by 2 percentage points
The Russian Bank moved the key interest rate from 13% to 15% on Friday. As reported by the "Kommersant" daily, the reason cited for this decision is "heightened inflationary pressures." The cycle commenced in August of this year at a special meeting, where the primary rate saw an increase from 8.5% to 12%.
Russian borrowers should brace for this tightening to persist. Elvira Nabiullina, the head of the Russian Bank, announced that the key interest rate will continue to rise until inflation consistently slows.
The bank's head predicts that the pace at which prices are increasing in the country should revert to the target by next year. A critical challenge within the economies, however, is the shortage of workforce. This has arisen from the mobilization of personnel on the Ukrainian front. This mobilization has resulted in a demand-supply imbalance; as per official Russian reports, the consumer demand is high, but goods production does not meet it due to workforce shortage.
