Russia Central Bank Hikes Interest Rates to 21%, Highest Since 2003

Russia’s central bank has hiked interest rates to 21 percent, taking borrowing costs to their highest level in more than 20 years as Moscow’s Ukraine offensive has triggered rapid price rises at home.

The rise takes rates above an emergency level introduced in February 2022 — just after Moscow ordered troops into Ukraine — and to their highest since 2003 as the regulator battles to stem the economic fallout of the conflict.

“Further tightening of monetary policy is required to ensure the return of inflation to the target and reduce inflation expectations,” the bank said in a statement announcing the increase.

Without mentioning the Ukraine offensive, it directly blamed high government spending for inflation and said it could hike rates yet again.

“Additional fiscal spending and the related expansion of the federal budget deficit in 2024 have pro-inflationary effects,” it said.

Inflation has surged amid a massive increase in outlays on the Ukraine offensive that has triggered labour shortages across the economy.

Price rises were running at 8.6 percent on an annual basis in September, more than double the official 4.0-percent target.

Russian lawmakers voted Thursday to increase defence expenditure by almost 30 percent next year, another sign Moscow is not planning to halt its spending on the offensive, grinding through its third year, any time soon.

The spending boom has created strong growth despite an unprecedented package of Western sanctions that Washington hoped would cripple the Russian economy.

The International Monetary Fund this week raised its growth forecast for Russia in 2024 to 3.6 percent.