The head of the Central Bank of Russia Elvira Nabiullina announced the “depletion of the last reserves of the Russian economy.” The reserves of labor and production capacity in the Russian economy are practically exhausted.
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According to the new forecast, by the end of the year inflation in Russia will be 6.5-7.0%, and not 4.3-4.8%.
On Friday, the head of the Central Bank described a crisis scenario that could threaten the Russian economy.
The GDP growth rate in the first and second quarters remained high. At the same time, inflation accelerated. This means that the economy is still in a state of significant overheating. The reserves of labor and production capacity are almost exhausted. The shortage of these resources may lead to a situation where the growth rate of the economy will slow down, despite all attempts to stimulate demand. And the entire stimulus will go into accelerating inflation. In essence, this is a stagflation scenario. And it can only be stopped at the cost of a deep recession, she said.
In fact, the head of the Central Bank described what overheating of the economy could lead to – the Bank of Russia warned about this last summer.
Budget expenditures this year will amount to almost 38 trillion rubles — of which more than 20 trillion have already been spent. In 2023, budget expenditures were less — 32 trillion rubles.
Before the full-scale war with Ukraine, the Russian budget expenditures usually did not exceed 25 trillion. This money is distributed throughout the economy and increases demand from the population and business.
And this coincided with the fact that businesses can quickly increase the supply of goods and services. Firstly, sanctions and the disruption of supply chains after the war have an effect – it is difficult to quickly purchase any goods. Moreover, difficulties with payments have recently arisen.
Therefore, the Russian Central Bank met the expectations of analysts, who expected an increase in the key rate from 16% to 18%.
Before this, the Bank of Russia kept the rate unchanged four times, the last time on June 7. It had been at 16% since December.
Nabiullina also announced a rate increase, citing the fact that inflation does not fit into the regulator’s baseline scenario.
The Russian Central Bank raised the key rate to a record 20% after the war in Ukraine began in February 2022. In April 2022, it reduced it to 17%, in May – to 14%. The rate was reduced until September 2022, and then only increased.
Source: Racurs
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