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Russia juggles soaring inflation and sinking growth as sanctions bite


Russia’s central bank governor Elvira Nabinullina said Monday that additional interest rate reductions may be required as the economy adapts to international sanctions.

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Russian central banks face difficult tasks in balancing consumers stockpiles, supply shocks, and predicted slowdowns in spending while tough international sanctions are applied to the Russian economy.

Russian inflation rose to 16.7% annually in March. However, the central bank cut the main rate it sets from 20% to 17% earlier in the month to try to reduce the situation. impact of economic sanctions.

Elvira Nabiullina from the Central Bank of Russia suggested on Monday that policymakers must have the ability to reduce the key interest rate more quickly. She also said that it was not necessary for the central bank to try and rein in inflation, as that would stop businesses adapting to the economic changes.

The CBR more than doubled its main interest rate from 9.5% to 20%In late February after Russia’s invasion unprovoked of Ukraine, the ruble currency of Ukraine fell to a new low. This was despite a host of international sanctions.

The central bank seems to prioritize supporting the economy during a period of transition, despite March’s 7.61% monthly inflation, which was the highest since 1999.

Nabiullina announced Monday that CBR will strive to get inflation back to its target of 4% by 2024. But, Nabiullina indicated that sanctions have begun to impact financial markets and the real world.

According to the World Bank, Russia’s GDP is expected to shrink by 11% in this year. The IMF projected on Tuesday a contraction rate of 8.5% for 2022 and 2.3% for 2023. Russian President Vladimir PutinMonday’s statement indicated that the government might need to increase its budget spending to support the economy and boost liquidity.

Goldman Sachs stated last week that existing trends in Russia’s economy are continuing. However, weekly data indicated that inflation is slowing.

Goldman Sachs’ economists stated that “consumer spending continues slowing and the services PMI has weakened significantly more than it did the manufacturing PMI.” This is quite plausible because Western companies who have at most temporarily pulled out from Russia were more interested in services than manufacturing.

Although inflation is decreasing, it remains at just below 1% per week. It’s disproportionately caused by households stocking up non-perishable items and taking forward purchases of consumer durables to avoid supply disruptions from sanctioned countries. Export activity has picked up, according to the port data.

On Wednesday, inflation data from the past week will be available. But, Maxim Reshetnikov (Russian Economy Minister) told a meeting of government on Tuesday that he anticipates a significant slowdown in consumer prices increases.

Along with a shrinking economy, Russia also faces a major default on its foreign debt unless it can return to repaying bondholders in dollars, as agreed under the terms of its loans, by the end of a grace period on May 4, according to ratings agencies Moody’s and S&P.

Timothy Ash of Bluebay Asset Management is a senior emerging market strategist. He said that the World Bank projections for a 11% decline in Russian economic growth would lead to a loss of around $200 billion, though he claimed this would be just the beginning.

Ash declared that Russia, as long Putin stays in power and due to all war crimes in the conflict and made public for the entire world, will be an international pariah in the years ahead.

It will be in default of its foreign debts for many years, isolated from capital markets and starved of investments, and increasingly isolated from global trade and business.