Russia’s central bank raises interest rates amid rising inflation

Russia’s central bank raised interest rates on Friday to 19%, warning of a sharp rise in inflation.

Inflation reached an annual rate of 9.05% in August, the Russian statistics agency reported earlier this week.

The rate hike comes as Russia has faced economic difficulties since launching its attack on Ukraine in February 2022.

“Current inflationary pressures remain high,” the Russian central bank said in a statement.

The statement added that tightening monetary policy is necessary to resume the process of reducing inflation, reduce inflation expectations, and ensure that inflation returns to the target level in 2025.

Russia has faced price volatility since it sent troops into Ukraine in February 2022, prompting a series of Western sanctions and tough measures to stabilize the economy.

Billions have been spent to fund the military and defense sector as part of a massive increase in government spending of nearly 50% since 2021.

This helped protect the economy from the collapse that many had predicted, but it led to prices rising rapidly.

“The labor market continues to face a shortage of workers, and unemployment has fallen to new historic lows,” the Russian central bank said.

Inflation fell slightly in August but remains well above the government’s target of 4%.

The Russian central bank has sharply raised interest rates over the past year, approaching the emergency 20% level imposed immediately after the conflict erupted.

He says raising rates like this is necessary to control the economy and avoid the risk of stagflation.

But higher borrowing costs have hurt some consumers and businesses, many of which rely on short-term debt.