The Central Bank seeks to confront the economic repercussions of the military operation in Ukraine This includes Western sanctions, an increase in government military spending, and the call-up of hundreds of thousands of men to fight.
In explaining the decision, the Central Bank said in a statement, “Current inflationary pressures remain high. Annual inflation for 2023 is expected to approach the upper limit of the expectations range, which ranges between 7 and 7.5 percent.”
The goal of raising interest rates is to drain demand by making it more expensive to borrow money and encouraging consumers and businesses to save rather than spend.
Analysts expected this increase, with the central bank repeatedly declaring that its priority is to combat… Inflation Which recorded 7.5 percent in November
The bank said it expects “tight monetary conditions in the economy to be maintained for an extended period.”
Politicians, businesses and residents consider the exchange rate a key measure of Russia's economic health.
The decision to raise interest rates comes a week after Russian President Vladimir Putin announced his intention to run in the presidential elections in 2024, allowing him to remain in the Kremlin until at least 2030.
In his press conference marking the end of the year, Putin on Thursday praised the unemployment rate of 2.9 percent, “at its lowest level ever,” and considered it “a very good indicator of the state of the economy.”
But analysts say that the decline in employment rates is not a good sign, but rather shows a shortage of employees, as various sectors face difficulty in filling jobs.
The mobilization of hundreds of thousands of men for conscription drove them out of the labor market and forced many of the more educated to flee the country.
The workforce shortage leads to higher wages, as employers are forced to offer more attractive salaries in order to hire.
While this led to a cycle of rising wages and prices, increased military spending caused a deficit in the government's budget.
