Tensions between the Russian government and the central bank amid a slowing economy
The Russian government and the central bank clashed Friday at the Saint Petersburg Economic Forum over measures to stimulate the economy, amid slowing growth due to the repercussions of the war in Ukraine.
In 2023 and 2024, the Russian economy demonstrated unexpected resilience in the face of Western sanctions imposed in 2022 in response to the Russian invasion of Ukraine, but the situation has changed in the past few months.
The massive investments in the military-industrial complex to support the Russian army are no longer sufficient to stimulate the economy.
Many influential economic bodies attribute the situation to the Central Bank, which is adopting an extremely tight monetary policy with very high key interest rates of 20% to contain inflation at all costs.
The approach of the bank’s president, Elvira Nabiullina, no longer sat well with business owners and some government officials.
Alexander Novak, Deputy Prime Minister in charge of the energy portfolio, said, “The indicators show that it is necessary to lower interest rates,” stressing that the time has come to cut key interest rates and warning against missing the opportunity, while the current situation is painful.
In the first quarter of the year, growth slowed to 1.4%, its lowest rate since the first three months of 2023, and the outlook is dim compared to last year.
Economy Minister Maxim Reshetnikov warned Thursday at a forum in St. Petersburg that the economy is on the verge of entering a recession, and its ability to recover will depend on decisions from the Russian state and the Central Bank, particularly regarding interest rates.
Two days ago, Maxim Oreshkin, economic advisor to President Vladimir Putin, said that the Russian growth model, adopted on an emergency basis since 2022 to absorb the shocks caused by sanctions, has become exhausted and should be reconsidered.
Despite criticism from various quarters, the Central Bank insists on maintaining its lending policy, even as inflation remains close to 10%.
“A rapid reduction in key interest rates will likely not significantly change anything in the short term, except for the level of prices and their rate of increase,” Andrei Gangan, head of the bank’s monetary policy department, said at the St. Petersburg Forum.
President Putin is expected to deliver a speech on Friday afternoon during the plenary session of the economic forum.
