Russia's Central Bank Hikes Interest Rates to 15%

Facts

• The Bank of Russia has raised its benchmark interest rate by 200 basis points to 15% and updated its annual inflation forecast for 2023 to 7-7.5% from 6-7%, citing higher-than-expected inflationary pressures as domestic demand outpaces supply expansion.¹
• The rate hike, announced on Friday, comes as inflation in Russia hit 6% in September, reportedly due to the Ukraine war — which has disrupted food supplies, pushed up energy costs, mounted import bills, and increased Moscow's military spending.²
• Sanctions imposed over the Kremlin's military operation in Ukraine have also extracted a toll on the Russian economy, with seasonally adjusted price growth in the third quarter of 2023 reportedly exceeding a year-on-year rate of 12%.³
• Since July, Russia's Central Bank has raised interest rates by 750 basis points in four consecutive hikes to cool the country's economic activity by stimulating savings.⁴
• This cycle of monetary tightening has been extended despite Russia's ruble heading for the best performance in emerging markets for the second month in a row, following a reimposition of capital controls to take pressure off the currency that has lost around 20% of its value against the dollar.⁵
• The Bank of Russia has increased its benchmark rate — which remained at 7.5% until last October — from 9.5% to 20% following Russia's invasion of Ukraine in February 2022.⁶

Sources: ¹TASS, ²BBC News, ³Associated Press, ⁴The Moscow Times, ⁵Bloomberg and ⁶Novaya Gazeta Europe.

Narratives

• Pro-Russia narrative, as provided by RT International. Markets have welcomed this rate increase, which further strengthens the ruble, as Russia's Central Bank has adjusted its expectations and parameters of fiscal policy to meet the faster-than-expected economic growth in the third quarter. The regulator is committed to ensuring that Russia remains on the path of balanced growth.
• Anti-Russia narrative, as provided by Reuters. Though the Kremlin seeks to project the image that Russia is performing better than expected, this isn't the case — inflation is soaring, labor markets are contracting, and Moscow is deepening its dependence on Beijing. The so-called good performance under a full war-financing mode indicates an overheating economy heading into a painful future.

Predictions