In a dramatic move to curb soaring inflation, Russia’s Central Bank raised its interest rate to 21%, the highest since 2003, in response to surging military expenditure and sanctions-driven economic pressure. Inflation in Russia reached 9.8% in September, propelled by unprecedented domestic demand and limited supplies. With factories at full capacity to meet military and domestic needs, the country faces severe economic strain as sanctions curb global oil revenue and hinder growth.
Central Bank Governor Elvira Nabiullina noted that additional rate hikes are possible, aiming to rein in inflation. However, this approach risks slowing private investment and consumer spending, as higher rates make borrowing costly for businesses and households. Despite Russia’s 4.4% economic growth in Q2, the IMF projects a downturn in 2025, anticipating a drop to 1.3% GDP growth.
Oil sales, despite Western sanctions, remain crucial for Russia, though geopolitical volatility threatens future stability. Analysts warn that prolonged military spending and rate hikes could weaken Russia’s economic foundation, with inflation forecasted to stabilize at 4.5-5% by 2025 if geopolitical pressures ease.
