Russia’s central bank on Friday said it was cutting its benchmark interest rate to 16 percent as the economy sags under the financial burden of the Ukraine offensive and Western sanctions.
Moscow has ramped up military spending to fund its campaign against Ukraine, pumping out missiles and drones and paying lucrative salaries to its soldiers – expenditure that spurred two years of rapid growth but that is now straining public finances and price stability.
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The spending pushed up inflation, weighing on real growth, while businesses have railed against high borrowing costs introduced to rein in the rise in prices.
Earlier this month, Russia reported the steepest drop in annual inflation so far this year – in November it fell to 6.6 percent compared to 7.7 percent a month prior.
The bank in a statement said it “will maintain monetary conditions as tight as required to return inflation to the target” of four percent a year.
“We must do everything possible to ensure that the Russian economy, the macroeconomy, is healthy and strong, and that the country’s economy has such a solid foundation,” Russian President Vladimir Putin said on the cut.
State statistics agency Rosstat said earlier it expected annual inflation to ease to the four percent target only in 2027.
To plug a budget gap running at around $50 billion so far this year, the Kremlin has raised taxes to tap the pockets of citizens and businesses.
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