Interest rate hike to 19%: Russian central bank battles inflation

The Russian central bank has raised interest rates to 19 percent to combat inflation. According to AFP, public spending intended to support the offensive in Ukraine is exacerbated by inflationary pressure.

The head of the Russian central bank, Elvira Nabiullina, stated that inflation has become "unacceptable". "We are prepared to maintain a strict monetary policy for as long as necessary," she added during a press conference.

According to official statistics, the rise in prices in Russia was 9.05 per cent in August. However, Paweł Jeżowski, a stock market investor and analyst of Russian economic data, believes it is as high as 30 per cent, as he mentioned at the end of July in the programme "Didaskalia".

The Russian central bank recently raised interest rates from 16 percent to 18 percent. Nabiullina acknowledged that "the labour market remains tight" and that insufficient employment in many sectors of the economy is a "major obstacle" hindering increased production. According to AFP, labour shortages stem from industry competing with the army for workers and the exodus of thousands of people abroad.

Significant expenditures on the military, payments to soldiers and their families, and investments in the arms sector, as well as the general shift of the Russian economy to a wartime mode, significantly mitigate the effects of Western sanctions. However, this leads to inflation, explains the French agency.

In recent months, the heads of Russian companies have complained about the rising costs of bank loans and, consequently, investments, which they believe are limiting economic growth, especially in sectors not connected to the arms industry.

The newspaper "Le Monde" recently emphasized that "the economy of death is fuelling economic growth in Russia". According to the Parisian newspaper, significant expenditures on the arms industry, payments to soldiers, as well as compensation and benefits for the families of the fallen, create a "financial bubble that prolongs the war".

"Due to these significant sums spent on the war economy and salaries of contract soldiers, in Russia there has been consumption-driven growth. (...) Unemployment is at a record low – 2.6 per cent. Based on such parameters, the World Bank placed Russia in July on the list of countries with 'high incomes'," reported "Le Monde".

The influx of money reaching consumers increases demand but also overheats the Russian economy, causing inflation to rise.

Nabiullina admitted at the end of July that "reserves of workers and production capacities are virtually exhausted". The war causes a shortage of workers, while the entire industrial-military complex is searching for a workforce to maintain production at the required level, working 24 hours a day, seven days a week.

In the interest of dictator Vladimir Putin lies the continued militarisation of the economy and inflating the financial bubble, as there are no other methods to stimulate growth. According to "Le Monde", this complicates hopes for a quick end to the war, as "Russia may benefit from such growth for five to six years".