Russia’s central bank cut its benchmark interest rate Friday by one percentage point to 17%, a step that could support the economy as growth slows and spending on the war against Ukraine increases the budget deficit.
The bank had raised its key rate as high as 21% to combat inflation, but has begun to retreat amid complaints from business leaders and legislators about their impact on economic activity.
The bank’s inflation warnings in its policy statements underlined the stresses in the Kremlin’s wartime economy.
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The central bank is focused on containing prices. Yet the finance ministry is pumping money into the economy in the form of defense orders and military recruitment bonuses that have fueled growth, wages and inflation over the course of Russia’s 3 1/2 year war against Ukraine.
At the same time, the earlier interest rate of 21 % was considered too low, because a higher rate would have been needed to curb inflation.
Sounds good. Now they have had to choose between rock and a hard place, and chose to let the inflation increase so that companies could at least kind of keep existing in the short term. A sensible decision, but painful, because it means killing the economy in the longer term.
They were able to chose both not to curb inflation, and neither to spur growth.
A win win scenario in my book.
Never interrupt your enemy when they are making a mistake.