The Russian central bank raised its key policy rate to 21% due to rising inflation and military spending. The decision was made against the backdrop of domestic demand exceeding production capacity.

The Russian central bank has announced a two percentage point hike in its key interest rate, to a record 21%, in an attempt to curb inflation. This is reported by AP, UNN reports.

Details

This decision was made against the backdrop of huge government spending on military needs in the context of the ongoing conflict in Ukraine, which puts additional pressure on the economy.

The NBU said in a statement that domestic demand continues to exceed the capacity to produce goods and services. Inflation is significantly higher than the July forecasts, and expectations of further growth also continue to rise. This may indicate the possibility of new rate hikes as early as December.

Despite the challenges, Russia's economy continues to grow thanks to high oil export revenues and growing government spending, mainly on the military. Higher interest rates are intended to make borrowing more expensive, which should help reduce inflationary pressures.

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