Russia’s central bank chief signals interest rate hike

RUSSIA’S central bank chief said on Thursday (Jul 4) that inflation was running ahead of expectations and hinted the bank was likely to hike interest rates later this month.

Prices have risen fast in Russia since it launched its military offensive on Ukraine in February 2022 and the Kremlin has massively ramped up spending on its army and arms producers.

The surge in public expenditure, combined with record labour shortages in many sectors, has created an inflationary spiral that has gripped the country over the last year.

“In July the discussion of a rate hike will be on the agenda,” governor Elvira Nabiullina told reporters in a televised news conference on Thursday.

“I think the main subject of discussion will be the step of the rate hike,” she added – suggesting a hike was a foregone conclusion, with the extent of the rise the only remaining question.

Russia’s key interest rate is currently fixed at 16 per cent after a series of hikes last year designed to tame price rises and stop a devaluation in the value of the rouble.

But inflation was still running at 8.3 per cent on an annual basis in May, far ahead of the bank’s official 4-per cent target.

The bank’s next rate-setting meeting will be on Jul 26.

Available data showed that inflation had “deviated, to a significant extent” from the bank’s previous forecasts, Nabiullina said.

SEE ALSO

Russian goods find their way to Singapore as war fatigue sets in

After oil, Russia may now be building a shadow fleet for gas

EU sanctions 19 Chinese firms over links to Russian war effort

Russia offers to help Vietnam develop nuclear energy: report

Biden to ban US sales of Kaspersky software over ties to Russia: source

Russia’s Putin, North Korea’s Kim sign mutual defence pact

Russian central bank keeps key rate at 16%, holds open prospect of rise

More

The central bank boss is one of President Vladimir Putin’s most important economic officials.

She has been credited at home – and criticised in the West – for helping to keep the Russian economy afloat amid a barrage of sanctions that threatened to push Moscow into a deep and protracted recession.

But huge outlays for its offensive in Ukraine have flooded the economy with cash, boosting growth but also fuelling inflation.

Nabiullina also said on Thursday that Russia was experiencing more problems with international payments, which the US has targeted in its latest sanctions packages.

“The situation with cross-border payments has become more complicated recently,” Nabiullina said.

This too, was an inflationary factor, she said, as it drove up transaction costs for importers.

Washington has threatened banks abroad with secondary sanctions if they service sanctioned Russian companies or help finance the import of banned goods into the country. AFP