How Putin's Move to Save Collapsing Currency Could Backfire
NewsweekAug 05, 2023
The Facts
The Bank of Russia has raised its benchmark interest rate by 200 basis points to 15% and updated its annual inflation forecast for 2023 to 7-7.5% from 6-7%, citing higher-than-expected inflationary pressures as domestic demand outpaces supply expansion.
The rate hike, announced on Friday, comes as inflation in Russia hit 6% in September, reportedly due to the Ukraine war — which has disrupted food supplies, pushed up energy costs, mounted import bills, and increased Moscow's military spending.
The Spin
Pro-Russia narrative
Markets have welcomed this rate increase, which further strengthens the ruble, as Russia's Central Bank has adjusted its expectations and parameters of fiscal policy to meet the faster-than-expected economic growth in the third quarter. The regulator is committed to ensuring that Russia remains on the path of balanced growth.
Anti-Russia narrative
Though the Kremlin seeks to project the image that Russia is performing better than expected, this isn't the case — inflation is soaring, labor markets are contracting, and Moscow is deepening its dependence on Beijing. The so-called good performance under a full war-financing mode indicates an overheating economy heading into a painful future.
