Financial market analysts are reassessing the Central Bank of the Russian Federation’s ability to lift the key interest rate as a tool to curb inflation. A publication from Vedomosti highlights this skepticism among experts.
Alexander Kleshchev, chief executive of the LMS investment company, argues that higher rates have minimal impact on consumer demand, which continues to drive price increases. He notes that in the current economic climate, this monetary policy instrument is losing its effectiveness.
He adds that demand growth stems mainly from government measures implemented after the start of the recent conflict, and the high cost of money makes it difficult to boost production within the economy. This, in turn, limits the potential for a rapid reduction in inflation through tighter financing conditions.
The expert also emphasizes that a higher rate is unlikely to shrink the job market deficit. In his view, the central bank should explore alternative tools to counteract rising prices and support overall stability.
Dmitry Kulikov, director of the ACRA country and regional ratings group, believes the bank has contributed to greater resilience against overheating in the economy.
He explains that prolonged overheating can fuel inflation and skew forecasts, which would justify continued policy tightening as a precautionary measure.
Recently, the Central Bank raised the annual interest rate from 16 percent to 18 percent. It also lifted its 2024 inflation projection from 4.3‑4.8 percent to 6.5‑7 percent, and adjusted GDP growth expectations upward from 2.5‑3.5 percent to 3.5‑4 percent for the year.
Former economists have discussed the advantages of higher rates for Russian households, but the debate continues as analysts weigh the broader impact on growth, labor markets, and price dynamics in the economy.