Vladimir Putin has admitted that sanctions on Russia and worker shortages have contributed to economic turbulence in the country.
The Russian president made the comments days after Russia’s Central Bank raised its key interest rate to a record 21 percent—higher than the emergency 20 percent level introduced in the aftermath of Putin’s full-scale invasion of Ukraine when facing Western sanctions and isolation from the global financial system.
Despite unprecedented Western sanctions on Russia, the IMF this month raised its estimate for the country’s GDP growth for 2024 from 3.2 percent to 3.6 percent, a point noted by Putin during a video conference Monday with top officials.
Russia’s economic growth has been fueled by record levels of military spending but a lack of workers exacerbated by troop losses in Ukraine and a brain drain of those avoiding the draft, have fueled inflation which the Central Bank has tried to curb.
“Difficulties and imbalances remain in the economy,” Putin said. “They are primarily caused by those difficult conditions in which we build up industrial, agrarian, and financial potential.”
Central Bank Governor Elvira Nabiullina attended the meeting. She said last Friday that there would need to be tighter monetary policy next year and suggested the key rate could be even higher when the bank meets for the final time this year in December.
On Monday, the Russian president referred to issues caused by “external sanctions” as well as “shortages of personnel and technology, logistics. These factors are reflected, among other things, on the dynamics of consumer prices.”
Inflation is 8.6 percent which is more than twice the Central Bank’s goal of four percent which the growing key interest rate aims to address.
“These hikes have significantly raised the cost of new loans and variable-rate loans,” Grzegorz Drozdz, market analyst at Invest.Conotoxia.com told Newsweek. There have been big spikes in the prices of food, transport, and building materials.
“The Russian ruble continues to weaken despite high real interest rates,” said Drozdz, referring to the rate of the Russian currency to the greenback now exceeding 97. “For over a year, Russia’s central bank has been combating rising CPI inflation.”
Drozdz said that the Central Bank is concerned about pro-inflationary factors like sanctions on imported products “and the government’s expansionary fiscal policy.”
“These measures aim to support the weakening ruble,” he said. “However, this decision is unlikely to undermine the Russian economy, which is indebted by approximately 15 percent of GDP—a record low compared to Western countries,” adding that high interest rates “will primarily impact citizens” rather than the government.
However, Vasily Astrov, an expert on the Russian economy at the Vienna Institute for International Economic Studies, told Newsweek that the Central Bank’s move to fight inflation at all costs by continuing to raise the key interest rate was misguided.
“Suppressing it by draconian monetary policy measures will only lead to stalling private investments, thereby exacerbating in the future the very problem of supply-side bottlenecks, which the central bank and many others, are lamenting,” he said.
