Russia’s central bank raised its interest rate by a full percentage point on Friday as government military spending in its invasion of Ukraine strains the economy.
Russia’s central bank raised its key interest rate on Friday from 18% to 19% as the country struggles with high inflation, with government spending on the military straining the economy.
Moscow’s spending since Russia’s full-scale invasion of Ukraine in 2022 has challenged the country’s ability to produce goods and services and has driven up workers‘ wages.
In a statement on Friday, the central bank said that “growth in domestic demand is still significantly outstripping the capabilities to expand the supply of goods and services.”
It held out on the prospect of more rate increases as part of efforts to return inflation from the current 9.1% to the bank’s target of 4% in 2025.
Russia’s economy continues to show solid growth as a result of continuing oil export revenues and government spending on goods, including for the military.
One result is inflation, which the central bank has tried to combat with higher rates to make it more expensive to borrow and spend on goods – theoretically relieving pressure on prices.
Friday’s rate rise marks the seventh in over a year.
Russia’s Central Bank last increased interest rates in July – when it hiked rates from 16% to 18%.
