Russia raised interest rates to the highest in 21 years

On October 25, the Central Bank of Russia announced an increase in the reference interest rate by 200 basis points (2%), to 21%. This increase is double the forecast of analysts, bringing interest rates to the highest since February 2003, according to Reuters. In September, this agency increased interest rates by 100 basis points, to 19%.

The last time interest rates in Russia were close to current levels was February 2022. At that time, officials raised the reference interest rate to 20% to stabilize the market, a few days after Russia launched a military campaign in Ukraine.

Governor of the Central Bank of Russia Elvira Nabiullina said they were even considering raising interest rates above 21% and still left open the possibility of further adjustment at the December meeting. This move was made to restrain consumer prices. usage is increasing beyond forecasts.

Russia’s Central Bank said current inflation is 8.4%. They forecast inflation at the end of this year at about 8-8.5%. This level is “significantly higher” than the July forecast of 6.5-7%. “In the medium term, inflation risks remain high,” the agency said. By 2025, inflation may cool down to 4.5-5% and down to 4% in 2026.

Russia raised interest rates in the context of many economies around the world, from the US to Europe, loosening monetary policy. This raises concerns about growth potential here.

In the World Economic Outlook report released this week, the International Monetary Fund (IMF) forecast that Russian inflation this year will average 7.9%. GDP growth could be 3.6% and fall to 1.3% next year, “due to slowing investment and consumption amid a tightening labor market and weaker wage growth.”