The Russian ruble has lost almost a quarter of its value since the beginning of August. Although the central bank in Moscow recently raised its key interest rate to 21 percent to curb high inflation, the currency is still in decline. Economist Vasily Astrov explains why this is the case.
“The central bank no longer has full control of the situation. Since mid-2023, the country has been trying to curb rising prices with ever higher interest rates. But inflation has not decreased, and in some cases even accelerated,” said the Russia expert from the Vienna Institute for International Economic Studies (wiiw) in an interview with the German magazine Spiegel.
Interest rate increases have no effect
The Russian central bank’s interest rate increases would be ineffective because, on the one hand, government loans were well below market value. B. for the defense industry: efficient credit control is impossible and on the other hand there are structural inflation factors. This includes strong wage growth: wages are rising by eight to nine percent every year in real terms, Astrov says.
Due to the American sanctions, Russia is also forced to process many imports via third countries, which increases costs. They make imported goods and services more expensive, which also contributes to high inflation. The central bank officially forecasts inflation of up to 8.5 percent this year, while former deputy head Oleg Vjugin estimates actual inflation at 18 to 20 percent.
“Pressure on the real economy is increasing”
According to Astrov, the increased interest rates hardly slow down inflation, but have a different effect: loans have become very expensive for many companies. The number of companies with payment arrears increased by around 70 percent between the second and third quarters of 2024. “The pressure on the real economy is increasing,” said the expert, who sees the danger that the central bank will push the Russian economy into a recession.
“Wrong monetary policy decisions”
According to the Wiiw expert, Russia’s economic weakness is the result of wrong monetary policy decisions. The problem is self-made, he says in the Spiegel interview. Moreover, since the start of the war, about a million Russians have left the country – mainly representatives of the urban middle class and IT specialists. The economy would miss these workers now.
On the one hand, there is also a demographic change in Russia – the birth rate is always below the death rate – and on the other hand, fewer foreigners are coming to the country. Until the start of the war, people from the Caucasus and Central Asia in particular took poorly paid jobs. Because the ruble has depreciated enormously, the incentive for them to work in Russia has diminished.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
