The Central Bank of Russia (BCR) lowered its official interest rate this Friday, from 17 to 16.5%, at a time when Russian growth is close to zero, in an economy that is suffering the consequences of the offensive in Ukraine and Western sanctions.
The Russian economy “continues to return to balanced growth,” the BCR said in a press release, suggesting that the Russian economy has stagnated after two years of rapid expansion fueled by significant military spending related to the conflict in Ukraine. The BCR has once again lowered its growth forecasts, now expecting growth of between 0.5 and 1% for 2025, after previously estimating it between 1% and 2%.
The increased spending has allowed Russia to defy predictions that massive Western sanctions against it would collapse its economy. But this spending also caused inflation to rise, forcing the BCR to raise its rate to a very high level, to 21%, last October, and then slowly lower it.
Inflation remains high
The BCR also indicated that inflation, at around 8%, would remain high for longer than expected.
Slowing growth is putting pressure on Russia’s already strained public finances, whose budget deficit hovers around $50 billion since the start of the year. The Ministry of Finance has proposed increasing VAT from 20 to 22% starting next year.
Source: BFM TV
