Russia Warship Sinks – Inflation at Highest Level Since 2015
Russia’s central banks are facing a challenge. These include balancing consumer supplies, potential costs slowing down, and supply shocks. Strict international sanctions are trying to bring the Russian economy to its knees. It is worth noting that Russian inflation reached 16.7% per annum in March. However, the central bank cut its key interest rate from 20% to 17% at the beginning of the month. It seeks to mitigate the impact of economic sanctions. The governor of Russia’s central bank said on Monday that policymakers should be able to reduce the critical rate faster. He also added that the central bank would not try to curb inflation necessary. This will prevent businesses from adapting to the new economic environment.
CBR doubled its key interest rate from 9.5% to 20% at the end of February. After the unprovoked invasion of Russia in Ukraine the country’s ruble currency fell to a record amid punitive international sanctions. Although monthly inflation reached 7.61% in March, its highest rate since 1999, The central bank seems to prioritize supporting the economy during the transition period. Nearly half of Western sanctions have begun to freeze, including the CBR’s foreign exchange reserves. The CBR aims to bring inflation back to the 4% target in 2024. However, the central bank governor noted that the consequences of the sanctions are shifting from the financial markets to the real economy.
Inflation in Russia
The World Bank estimates that Russia’s GDP will shrink by 11% this year, While the IMF forecasts an 8.5% decline on Tuesday in 2022, Then by 2.3% in 2023. Russian President Vladimir Putin said Monday that the government might need to increase budgets to increase liquidity and boost the economy. In a note published last week, Goldman Sachs noted that trends in the Russian economy continue. However, weekly data indicate that inflation will slow down slightly.
Consumer spending continues to slow. Mainly the services PMI has weakened significantly, and more than production is quite convincing. Western companies, which at least temporarily left Russia, were more engaged in services than in manufacturing. According to economists, inflation is slowing down. However, it remains at a high level, less than 1% per week. This is disproportionately driven by households continuing to purchase long-term consumer products; For fear of delayed delivery caused by sanctions in the future. According to port data, export activity appears to have increased in the second half of March.
Last week’s inflation data is due to be released on Wednesday. However, Russia’s economy minister told a cabinet meeting on Tuesday that he expected a “significant slowdown” in consumer price growth. Along with a shrinking economy, Russia also faces a large default on its foreign debt. If It cannot return to the bondholders in dollars on May 4, before the end of the grace period, as agreed in terms of his loans.
According to a Bluebay Asset Management strategist, the 11% contraction projected by the World Bank would mean a blow of about $200 billion to the Russian economy. However, he argues that this will only be the beginning of the country’s economic situation. For Russia, as long as Putin is in power and for all the war crimes committed in this war that the world has seen, Russia will remain the international pariah for years to come. He estimates it will stay in external debt default for years to come. Will be isolated in the global capital markets, starving for investment. The country will be increasingly disconnected from international trade and business.
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