Russia’s central bank holds rates amid inflation

Russia’s central bank held interest rates unchanged on Friday as Moscow’s military offensive on Ukraine has led to stubbornly high inflation and labor shortages. The central bank raised rates to 16 percent in a series of hikes last year to cool the pace of price rises. Analysts are waiting for the bank to signal whether its policy is working, and if it might cut borrowing costs soon. “Current inflationary pressures are gradually easing but remain high,” the bank said Friday in a statement.

It said recent rate increases would eventually bring inflation down, but that it was “premature to judge the pace” at which that would play out. Speaking at a press conference in Moscow, Governor Elvira Nabiullina said the bank would “need to maintain tight monetary conditions for a long period” and that inflation risks remained “tilted to the upside” — meaning price rises could accelerate in the coming months. Russia’s Rosstat statistics agency said prices rose 7.7 percent in the year to February — up from 7.4 percent in January.

The government officially targets an annual inflation rate of four percent. Consumer prices are a sensitive topic in Russia, where surveys show the majority of people have virtually no savings and where memories of hyperinflation and economic instability run deep. A surge in military spending to support the offensive has helped shield the Russian economy from a sharp downturn that many predicted when Putin ordered troops across the border in February 2022.

“The growth of economic activity has sped up again, primarily in household consumption,” Nabiullina said Friday, adding that she continued to “see signs of overheating.” The drafting of hundreds of thousands of soldiers, a ramp-up in domestic arms production and an exodus of men seeking to avoid being conscripted has created deep labor shortages in parts of the economy.

All of that has combined to create a spiral of rising wages and consumer prices. The bank said Friday that “labor market tightness has increased again,” suggesting the trend will continue to push prices higher — particularly in the services sector — over the foreseeable future.