The Russian Central Bank Raised Interest Rates To A Record 21% To Fight Inflation.

(VOR News) – To combat inflation, which has been exacerbated by military expenditures, the Russian central bank raised the benchmark interest rate by 200 basis points, bringing it to an all-time high of 21%.

This resulted in the interest rate reaching a level that had never been seen before. On Friday, the Russian Central Bank raised its benchmark interest rate by two percentage points, bringing it to an all-time high of 21%. This move was made in an effort to combat the rising rate of inflation.

This step was done in order to solve the ongoing problem of rising inflation. This program was carried out as a response to the fact that the government’s expenditures on military operations were putting pressure on the economy’s ability to supply products and services, which ultimately resulted in a rise in the compensation of workers.

“Domestic Russian Central Bank demand continues to outpace supply of goods and services.”

“This represents a substantial rise compared to the prior year.” This assertion is accurate in light of the circumstances that currently exist. In the press release, it was claimed that inflation “is significantly exceeding the Bank of Russia’s July forecast,” and that “inflation expectations are persistently rising.”

Inflation in Russia was the subject of both of these remarks. This has resulted in an increase in the likelihood that there will be additional rate rises in December.

The Russian Central Bank economy continues to demonstrate signs of expansion as a result of consistent earnings from oil exports and sustained investment by the government, particularly in expenditures related to the military. The interaction between the two variables is what led to this result.

By raising interest rates, the Russian Central Bank has attempted to reduce inflation; nevertheless, this action has ironically resulted in inflation occurring as a consequence of the activity.

The cost of borrowing money has grown as a result of the rise in interest rates, which has made it more expensive to finance purchases. This, in theory, should help alleviate the pressure that is placed on expenditure.

The refinancing rate, which served as a comparable instrument, has been effectively replaced by this crucial interest rate ever since it was first introduced in 2013. The end result is that the main interest rate in Russia is the highest of any interest rate in the world.

In February of 2022, the Russian Central Bank made a last-ditch effort to strengthen the ruble as a response to the heavy sanctions that were imposed as a result of the Kremlin’s military intervention in Ukraine. Nevertheless, the rates reached an all-time high of twenty percent, which was an incredible milestone.

Recently, the Russian Central Bank once again surpassed its peak in February 2022.

While the unemployment rate in Russia was at a low 2.4% during the second quarter of 2024, the economy of Russia expanded by 4.4% during that same period. The nation has made progress in a positive direction as a result of this.

The vast majority of factories are currently running at full capacity, with the majority of their output being commodities intended for use in the military. The product includes a variety of garments as well as various modes of transportation, including automobiles.

In other instances, Russian Central Bank manufacturers are providing solutions to fill the voids that have been left by imports from countries that have been subjected to sanctions or by the decisions of foreign enterprises to suspend operations in Russia. As a direct result of this, a great number of imports have been prevented from progressing.

The government is able to keep its earnings stable as a result of the progress of the economy and the continued exportation of oil and gas. The sanctions, which are not completely impermeable, as well as the price restriction of sixty dollars that Western nations have imposed on Russian oil, are also factors that contribute to this predicament.

Insurance companies and shippers in the Western region are not allowed to deal with oil that is priced more than the cap. In order to ensure that the cap will attach properly, this step is taken.

Through the Russian Central Bank establishment of its own fleet of tankers that are not dependent on Western insurance, Russia was able to sidestep the price cap, which resulted in roughly $17 billion in earnings from oil sales for the month of July. The fact that Russia was able to circumvent the price cap made this considerably easier.

SOURCE: EN

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