The Russian Central Bank (BCR) announced on Friday that it would maintain its key rate at 16%, a necessary condition, according to it, to bring down inflation which is still weighing down the purchasing power of Russians, under the effect of heavy Western sanctions.
“Current inflationary pressures have eased compared to the autumn months, but they remain high,” justified the BCR in a press release, after inflation stagnated in January at 7.4%, well beyond the announced target of 4%.
The BCR thus recognized that “in the medium term, inflation risks remain on the rise”, thus explaining that it wanted to “maintain restrictive monetary conditions (…) for a long period”.
This decision should reassure Russian entrepreneurs, worried about the increasing cost of investments in the country, against a backdrop of no prospect of ending the conflict with Ukraine and the high cost of living due to sanctions.
In recent months, the lack of labor – linked to the departure of hundreds of thousands of Russians to the front or abroad -, the weakening of the ruble, flexible credit conditions and significantly increased federal spending have contributed to the increase in prices.
“Labor shortages remain the main obstacle to increasing national production,” the BCR noted on Friday.
However, its leader, Elvira Nabioullina, has made inflation her hobby horse, in the midst of overheating of the national economy fueled by the explosion of military orders to supply the army fighting in Ukraine.
One month before the presidential election which should see him triumph without opposition, Vladimir Putin urged the BCR and the government at the start of the week to do everything to “control” the rise in prices, one of the main concerns of Russians.
Their purchasing power has been weighed down for two years under the effect of Western sanctions, coupled with the weakening of the ruble against the dollar and the euro.
However, Russians remain strongly marked by the memory of the financial instability of the 1990s, when millions of people saw their bank savings disappear under the effect of the devaluation of the ruble and inflation.
In its press release, the Russian Central Bank said it hoped for inflation of around “4-4.5%” this year, while the government noted the explosion in defense spending of nearly 70% compared to 2023, which which could further accelerate the rise in prices.