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A Russian ruble coin is pictured in front of the Kremlin in central Moscow on April 28, 2022.Photo by ALEXANDER NEMENOV/AFP via Getty Images
Russia’s central bank sounded the alarm about inflation amid the falling ruble and a record labor shortage.
Policymakers held interest rates steady on Friday, but signaled a hike could be imminent.
“The option to raise the rate was considered, but by consensus we decided to hold the rate but tighten the signal.”
Russia’s central bank sounded the alarm on the economy on Friday as the falling ruble and a record labor shortage added to inflationary pressures.
Policymakers kept the benchmark rate stable at 7.5%, where it has been since September, but signaled an increase could be imminent.
“The option to raise the rate was considered, but by consensus we decided to keep the rate but tighten the signal,” Governor Elvira Nabiullina said at a news conference. according to Reutersadding that “the likelihood of a rate hike has increased.”
Central bankers even discussed a 25-75 basis point increase, she said. That’s as data showed Wednesday that weekly consumer prices rose sharply.
A rate hike would be the first since the central bank raised its key rate to 20% in the immediate aftermath of last year’s Russian invasion of Ukraine as it sought to stabilize the ruble and financial markets after Western sanctions froze the Kremlin’s foreign exchange reserves .
Since then, the central bank has cut interest rates again as inflation has cooled. But the new forecasts expect inflation to accelerate to 4.5%-6.5% by the end of the year, from 3.5%.
“Accelerated fiscal spending, deteriorating foreign trade conditions and the labor market situation remain pro-inflation risk factors,” the central bank said on Friday, noting that inflation risks are even more upside.
The warning comes as Russia has moved to a total war economywhile Ukraine’s new counter-offensive points to more defense spending by the Kremlin.
Meanwhile, the ruble has fallen about 14% against the dollar so far in 2023, making imports more expensive and further increasing inflation. On Friday, the ruble fell past 83 against the dollar, its lowest point in more than two months.
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Other data has emerged Russia is facing a record labor shortage as Vladimir Putin’s war against Ukraine caused a major shock to the workforce. The army mobilized 300,000 troops last year and plans to mobilize hundreds of thousands more this year, while an estimated 200,000 have been killed or injured in Ukraine.
And the mass exodus of Russians to other countries to escape military service or economic hardship has exacerbated the labor shortage. A recent study estimated that 1.3 million young workers left the workforce alone last year, representing a “massive brain drain.”
Labor shortages also contributed to the increase sharp decline last month in Russia’s industrial productionwhich fell 5% from the previous month.
Read the original article Business Insider
