Putin acknowledges a key pain point in Russia’s economy

• Russian President Vladimir Putin has urged his government and central bank to curb Russia’s 8% inflation rate.
• Russia’s inflation target is 4%, with interest rates at a record high of 21%.
• The high interest rates are pressuring businesses and hurting the cash savings of ordinary people.

Russian President Vladimir Putin appears to be signaling to his government and the central bank to put aside their differences to tackle a critical problem for businesses and regular people alike: inflation.

Russia’s inflation rate is 8% compared to a year ago, which Putin acknowledged was “a relatively high level.”

“It is imperative to avoid any misalignment in key macroeconomic indicators and prevent sectoral imbalances, which undeniably includes the necessity of controlling inflation,” the Russian leader said at an investment forum in Moscow on Wednesday.

Putin doubled down on “coordinated joint efforts” from the Russian government and the central bank to curb inflation, echoing comments he made in August.

“I would like to stress that this is not just a recommendation or a proposal — this is a guide to action, as I see it,” he said on Wednesday, adding that the two groups are already coordinating.

Russia’s inflation target is 4% and Putin said the country should increase the supply of goods and services to fight inflation, per TASS state news agency. Before the pandemic and war in Ukraine, the country’s inflation rate — like that of many peers — was much lower, hitting 3% in December 2019.

Putin’s comments come amid recent complaints from Russian business elites that they are sick of propping up the country’s economy as interest rates soar to record levels in the country’s wartime economy.

In October, Russia’s central bank hiked its key interest rate to a high of 21% to tame prices, intensifying criticisms — from business leaders, lobby groups, and the government — against Russian central bank governor Elvira Nabiullina’s policies.

Sergei Chemezov, the CEO of the defense conglomerate Rostec, said in October that record-high interest rates were “eating up” the profit from the company’s orders.

“If we continue to work like this, then most of our enterprises will go bankrupt,” Chemezov said.

One of Russia’s top bankers told Reuters late last week that a high interest rate may not help much given high defense expenses and sanctions.

Price raises in Russia are making life very expensive — butter and potatoes cost substantially more than they did at the start of the year — and eating into people’s savings.

The cash savings of Russians are now at all-time low of 15.9 trillion rubles, or $151.5 billion, due to high interest rates, VTB — Russia’s second-largest lender — said on Wednesday. That figure does not include foreign currency holdings, which VTB estimates are about $94 billion.

Analysts polled by Reuters expect Russia’s central bank to raise its key interest rate to 23% at its December 20 meeting. But Nabiullina said it was not predetermined, the news agency reported on Wednesday.

Nabiullina also pushed back on the notion that the central bank’s tight monetary would spur a recession.

“Economists of the Central Bank believe the economic potential is on the rise and will continue growing in the next year,” she said at Wednesday’s forum in Moscow, per TASS.

“This is the result of large-scale investments in the upgrade of the economy during the last three years. If the potential is growing steadily, then this means also more space for demand growth,” Nabiullina said.