Russia Holds Key Rate At Two-decade High Despite Slowdown Fears
Russia's central bank kept borrowing costs at a two-decade high of 21 percent on Friday to combat rampant inflation, despite banks and businesses warning the economy was headed for a slowdown.
Prices have been rising quickly across the Russian economy for months, driven up by massive government spending on the Ukraine conflict and deep labour shortages.
Eye-watering lending rates have meanwhile hit businesses hard, with some of the country's top corporate leaders putting pressure on the central bank to relax rates.
In a statement announcing the rate decision, Russia's central bank acknowledged lending activity was "subdued" but that inflation, running above 10 percent, was still too high.
It said it would keep monetary conditions "as tight as necessary" until inflation returned to target.
Russia's target rate of inflation is four percent, but price increases are not expected to reach that level until 2026, and could average between 7-8 percent in 2025.
Speaking after the rate decision, central bank governor Elvira Nabiullina said inflation would likely start slowing down in May and compared high interest rates to "medicine".
It is "a very effective medicine that has been tested repeatedly in very different conditions," she told a press conference.
President Vladimir Putin has acknowledged that inflation is too high and on Thursday warned Russia's 2025 economic growth would be "slightly lower".
But he said this was part of a "soft landing" that Russia was actually "striving for".
Economists have warned for months of a slowdown in Russia's economic activity, with falling oil prices, high interest rates and a downturn in manufacturing all contributing to headwinds.
The Russian branch of Raiffeisenbank said in a March research note that confidence in the manufacturing sector had "significantly decreased over the last couple of months", and that production in the oil industry had also slowed.
Russia reported strong economic growth for 2024, largely due to massive state defence spending which is set to jump by almost 30 percent again in 2025.
But economists have cautioned that growth driven by the defence industry is unsustainable and does not reflect a real increase in productivity.
Interest rate rises may also not be an effective tool to bring down inflation, as so much spending is being directed by the state, which is less responsive to higher borrowing costs, according to analysts.
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Three months later, "illegal entrepreneurship, money laundering, tax evasion and document forgery" were added to the charges. If convicted, he could face up to 12 years in prison. Mehralizada's job of explaining economic issues to the public got him in trouble with the authorities Image: RFE / RL Painful memories for formerly incarcerated journalist Mehralizada's trial, which is expected to conclude this month, has brought back difficult memories for his RFE/ RL colleague, Alsu Kurmasheva, who spent nine months in a Russian prison after being accused first of failing to register herself under Russian President Vladimir Putin's controversial foreign agent law, then of the much more serious charge of "spreading false information." "Hearing that the prosecutors wanted a 12-year sentence for Farid was very painful," she told DW's Inside Europe podcast . "It took me back to my sentence where the prosecutor wanted nine years' imprisonment for me." 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When Alsu Kurmasheva first heard about Donald Trump's intention to freeze RFE/ RL funding, her first thought was for her imprisoned colleagues . Her next thought, she says, was: "what am I going to say next time I call their families?" However, with the substantial bipartisan support still enjoyed by RFE/ RL in Congress, together with the advocacy of press freedom groups and journalists around the world, Kurmasheva is hopeful that cases like Mehralizada's can be kept in the spotlight. Every time there are trade negotiations between countries, Kurmasheva says, officials shouldn't be afraid to raise the plight of imprisoned journalists: "When the free world unites over this issue, the problem will be solved." It's a conviction that might seem utopian, until you remember that Kurmasheva speaks with the authority of someone who has experienced the miracle first hand. Alsu Kurmasheva was imprisoned in Russia from October 2023 to August 2024 Image: AP/picture alliance Several RFE/ RL journalists imprisoned Since her release last year, Kurmasheva's journalistic career has been on hold. Meanwhile, she has become a full-time advocate for other journalists who have not been so lucky. They include her RFE/ RL colleagues Vladyslav Yesypenko in Crimea, Nika Novak in Siberia and Ihar Losik in Belarus, as well as Mehralizada. Kurmasheva says she is particularly alarmed for Nika Novak, because "conditions for women prisoners in Russia are horrific," and Novak is, she has reason to believe, becoming desperate. Ihar Losik disappeared into Belarus' notorious detention system five years ago, and no contact has been possible since. "He is a young journalist who is so talented," Kurmasheva says. "He shouldn't be there." Edited by: Carla Bleiker
