Russia interest rate raised to 5.5%

RUSSIA / FSU POLITICS - In Brief 12 Jun 2021 by Alex Teddy
On June 11 the Central Bank of Russia hiked the interest rate, as we predicted. The country is grappling with inflation. This has risen faster than CBR foresaw. It was 6% in May 2021: the highest since 2015. CBR said this could ruin the recovery.The RUB has not moved when the interest rate did. CBR said the recovery was quicker than anticipated. In Q2 2021 CBR predicts the economy will reach its pre-pandemic size. Consumer spending is already there. Production has risen to about pre-pandemic levels in some sectors.Food and commodity prices are rising fast. These are the headwinds Russia faces. CBR said inflation will remain over 4% (the bank's target) for the next 12 months. Prices rose 6.2% in early June 2021. CBR said this necessitates another rise in the key rate later. Rising prices are a problem for the government. Prices do not bode well for the September 2021 parliamentary elections. Living standards are the worst since 2011.Salaries were cut during the pandemic. In many cases these cuts have not been reversed. The president announced some additional welfare for families with minor children. The Finance Ministry wants to reduce spending and revert to a pre-pandemic strategy of fiscal conservatism.

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