Russia raised interest rates for the 5th consecutive time

In half a year, Russia raised interest rates 5 times, adding 850 basis points (8.5%) to deal with inflation.

The Central Bank of Russia on December 15 raised the reference interest rate by 100 basis points (1%), to 16%. This is the 5th consecutive time this agency has raised interest rates to cope with inflation. Analysts believe that this is also a signal that their tightening process is nearly complete.

Since July 2023, this agency has raised interest rates by 850 basis points. Including an emergency interest rate increase in August, after the Kremlin called for tightening monetary policy because the ruble exceeded 100 rubles per USD. Currently, this currency has recovered, to 90 rubles per US dollar.

The Central Bank of Russia said that inflation risks in the medium term are still large, and warned that to stabilize inflation around the 4% target, interest rates will need to remain high for a long time. Higher-than-expected public spending will also increase inflation risks.

Governor Elvira Nabiullina said that most central bank officials agreed with the 100 basis point increase. Some people even propose a higher increase.

"If the environment remains as it is now, we are close to the point of stopping raising profits. However, everything still depends on the actual situation", Nabiullina commented.

The Central Bank of Russia began tightening policy this summer, due to inflationary pressures from a strong labor market, rising consumer demand, budget deficits and the devaluing ruble. The agency said the Russian economy is still under pressure from labor shortages, especially in the manufacturing sector, affecting supply.

Ms. Nabiullina assessed sanctions and the global economic downturn as the main external risks for Russia, because the country is still dependent on revenue from oil and gas.

However, the Central Bank of Russia believes that the country's growth will still exceed forecasts, reaching over 3% this year, thanks to increased domestic demand.