Russia raises rate by the highest amount since 2014

RUSSIA / FSU POLITICS - In Brief 24 Jul 2021 by Alex Teddy

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On July 23 the Russian Central Bank raised the key interest rate by 1%. The aim is to contain inflation. The rate is now 6.5%, which is where it was before coronavirus. The RUB rose a little on the news. A rise in the key rate was generally anticipated. It had been trailed in the media earlier in July 2021. However, the size of the raise in key rate surprised many.Inflation in Russia is at 6.5%. That is the highest since 2016. The Central Bank of Russia (CBR) wants it down to 4%. Inflation is hurting the government's popularity. Prices for basic foodstuffs are rising faster than 4% per annum according to the CBR. There are parliamentary elections in September 2021, and the government wants inflation to be tackled before that.There is a battle inside the government about price controls. Some consider them vital to keep the cost of living down and shore up the government's approval rating. Others regard them as retrograde, sure to cause shortages of basic goods and damage the wider economy. Consumer demand is rising much faster than production, and the coronavirus has caused blockages in global supply lines. Many guest workers left Russia in 2020 and have not returned. This means that some jobs are unfilled. Wages have risen in certain sectors due to a dearth of staff. That in turn has contributed to the uptick in inflation. The Governor of the CBR said that there is a problem with the public's perceiving inflation as higher than it really is. This makes it even harder to bring inflation down. Interest rates had been at a historic low until recently. Inflation can partly be blamed on that.CBR's drastic approach in raising the rate so much in one go has had an impact on t...