9mo ago

Russia's central bank raises interest rate to 21% to fight inflation boosted by military spending

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9mo ago

Russia's central bank raises interest rate to 21% to fight inflation boosted by military spending

apnews.com /article/russia-interest-rates-0fa1d7385be622fd98756a5b4e715262

18 comments

This is probably the clearest indicator we have that the Russian economy is really struggling.
This is the highest key interest rate in Russia since it was introduced
It's just about 3 months ago the Russian central bank increased interest from 16 to 18%, and about a month that it was increased to 19%, and now to 21%! That's a HUGE increase in very short time.
The central bank said in a statement that “growth in domestic demand is still significantly outstripping the capabilities to expand the supply of goods and services.
Meaning the economy can't handle the demands put on it by the war on Ukraine.
inflation expectations continue to increase.
Meaning the value of wages is undermined. Making the average Russian poorer.
Nabiullina noted that inflation has overshot the goals because of increased government spending
Meaning the government is over spending, and the economy can't sustain current levels.
As I mentioned last time, it's notable that the Ruble doesn't increase significantly in value after these increases. As I have claimed earlier, this is a sign it will get worse, and it's gotten worse as predicted, and it will continue to get worse until the Russian economy collapses, or overspending ends because the war against Ukraine ends.
EDIT:
For comparison Ukraine had interest rates above 20% in 2022 and 2023:
https://tradingeconomics.com/ukraine/interest-rate
But Ukraine was invaded and is getting it under control, probably in part due to foreign aid, now it's a more moderate 13%
So Ukraine is stabilizing, while Russia is getting worse.
- I'm actually damn surprised that Ukraine is able to keep their interest rates that low.
  
  Absolutely, Russia originally had a massive advantages over Ukraine, because Russia had prepared for this, and has a bigger economy.
  Ukraine was caught off guard. Remember they criticized USA for warning that a Russian invasion was eminent.
  Nobody (almost) believed Russia would do this. So the Ukrainian economy was hit extremely hard, but is now doing better than Russia. And yes that is damned impressive.
- All great information IMO, thanks!
  Checked out the ruble, it's hovering just under 100 (97.2 rubble forca dollar), I wonder when it will hit it, and potentially starting to crash dive.
  Maybe the rubles "value" is in limbo though, as nobody wants to neither buy nor sell it.
  
  It's kind of already crashing:
  https://www.google.com/finance/quote/RUB-USD?window=5Y
  The Ruble came under stress immediately after Russia invaded Ukraine back in February 22nd 2022.
  As you can see there a steep drop below 1 cent, then Russia takes a number of immediate actions to support the Ruble, and the value increased to 1.84 cent.
  All these actions they took in early 2022 are still in force, yet the Ruble continues to decline, and in a little over 2 years, it has almost halved in value, despite Russian efforts to support it.
  If you look at the past 3 months on the graph, you can see a very obvious decline, even when the Central Bank increased Interest rates significantly 3 times from 16% to 21%.
  The Ruble is weak, and the hikes in interest rates that should stabilize it, are not effective and are undermined by the Russian economy simply being awful, and Putin becoming economically irresponsible.
  By comparison most western Central/National banks have lowered interest rates, for instance the European Central Bank has lowered rates 3 times this year to now 3.4%:
  https://tradingeconomics.com/euro-area/interest-rate
  Russia is unable to control inflation and currency rates, in an environment where the economies surrounding them are stable. So this is exclusively a Russian problem the imposed on themselves.
  Sorry for rambling. 😋
When you do lots of deficit spending, the sustainable way is to use it to rebuild your country and strengthen it. Sending your most capable young men into Ukraine or in weapons factories, making expensive stuff that does nothing but explode, or stuffing propaganda money up people's assholes to puppeteer them, does little for your country except extract everything of value and leave most of the country with nothing.
I'm no fan of China, but at least using large amounts of government funds to build needlessly fancy bridges, buildings, tunnels, railroads and highways brings prosperity and resilience to vast swaths of your country that you might be able to use later.
- Except in China a fair percentage of those are tofu dreg construction.
- The Maryland bay bridge is 70 years old... We still don't have high speed rail or public transportation that could be seen as a wonder.
  Just wanted to complain.
Fuck russia.
- Seems like they have started to fuck themselves quite hard.
We might actually see another hyperinflation.
- Proposed Swift network replacement BRICS Clear would die in its cradle.
- They are pretty far from hyperinflation. Inflation has not even officially hit double digits.
  
  Yes the Russian national bank is handling this very well, and that helps prevent hyperinflation.
  Technically hyperinflation is 50% monthly inflation for at least 1 month. But there may be other definitions?
  But if the Russian government persist in stressing the economy beyond what it can handle, there is a breaking point, where hyperinflation is a possibility, and not even their brilliantly led central bank can prevent it.
  Putin is obviously not as smart as we once thought, and he is out of good options. He may not be able to deal with this effectively, maybe not even rationally. He may turn to Hitler strategies, where Hitler moved military forces that didn't exist around on the map. But Putin might do it with the economy too.
  There have been indications that Putin is living in a fantasy world, where he thinks he can bend reality by force of will.

18 comments