Russia is creeping towards stagflation

The Central Bank of Russia raised its benchmark rate to a twenty-year high of 21 per cent on Friday – and has indicated that it could go even higher. Even Vladimir Putin, a notorious serial boaster, won’t be caught bragging about this tell-tale sign of a not-so-healthy economy. The writing is on the wall: Russia is getting closer to stagflation – a no-growth, high-inflation economy. 

An interest rate this high is unprecedented. In February 2003, still fresh in his job, Putin launched reforms to kick-start the Russian economy after the 1998 financial meltdown; the central bank brought its refinancing rate to 20 per cent and has kept it below that level ever since – until now. Even in the days after Russia’s full-scale invasion of Ukraine in 2022, rates went no higher than 20 per cent.

The main reason for the decision to raise the interest now was recent fiscal clarity in the government budget over a massive hike in regulated utility tariffs and state spending plans for 2024 and 2025.