On June 9, 2024, Russia’s central bank raised its key interest rate by 200 basis points to 21% in response to sharp increases in consumer prices and ongoing inflation risks. This decision follows a previous rate hike in September, which brought the rate to 19%.
The move exceeded analysts’ expectations of a 100 basis point increase, marking the highest rate since early 2003. The last comparable rate was in February 2022, soon after Russia’s invasion of Ukraine , when the rate was increased to stabilize the markets.
Central Bank Governor Elvira Nabiullina acknowledged the possibility of further rate hikes, discussing a potential rate above 21% at the next meeting in December. This reflects concerns about rising inflation, which averaged 9.8% in September, up from 7.5% in August. The bank now expects inflation to be between 8.0 and 8.5% by the end of 2024, significantly higher than its previous forecast.
The bank highlighted persistent inflation risks due to high expectations and economic imbalances, as well as worsening foreign trade conditions. Inflation is expected to fall to 4.5-5.0% in 2025 and 4.0% in 2026.
The Russian economy faces challenges stemming from low global oil prices and Western sanctions, which have impacted trade and contributed to the depreciation of the ruble. At 12:52 pm London time, the US dollar was up 0.36% against the ruble.
These interest rate increases run counter to the monetary easing approaches of the European Central Bank and the US Federal Reserve, raising concerns about potential constraints on Russia’s economic growth.
The International Monetary Fund expects Russian inflation this year to average 7.9%. In its October World Economic Outlook, the IMF noted that Russia’s GDP is expected to fall from 3.6% this year to 1.3% in 2025, due to slowing private consumption and investment in a context of less rigid labor markets and slower wage growth.
