Russia: Central Bank Preemptively Raises Interest Rates

Russia’s central bank stepped up its efforts to ward off rising inflation by raising the national interest rate to 10.5%. Inflation in the country has risen slowly but steadily as the economy worsens as a result of falling oil prices and economic sanctions that impact its defense and energy sectors. The move constitutes the second such increase in less than two months, with the central bank’s previous intervention coming only six weeks ago.

Despite steps taken by the central bank to mitigate the effects of a weakening economy, the causes of the inflation, which has risen to around 9.5%, aren’t expected to go away in the near future. Indeed, the Russian ruble, whose value vis-à-vis the dollar has hit records lows, is continued to fall notwithstanding attempts to bolster its value. The Russian economy has also suffered due to the current ban on Western food products throughout the country. The ban, which had initially been met with pride by large swathes of the Russian populace, is now viewed as having backfired on Russian policymakers due to relative shortages compared to recent years. The existing ban makes it impossible for regional sellers to discount their own goods to beat out imported products.

The goal of the latest rise in interest rates is to discourage consumerism and thereby eliminate price increases. The side effects of the rise could, however, be disastrous as economic growth is expected to slow even more, something a recessing Russian economy cannot realistically afford.

News Briefs: 

  • Russian President Vladimir Putin met with Indian Prime Minister Narendra Modi to reaffirm both countries’ commitment to the other. The meeting took place on the occasion of an annual India-Russia senior leadership summit, and saw the singing of numerous economic and political agreements further connecting the two sides. The meeting with Modi is viewed as strategic by Western observers who view the Russian strongman’s recent world tour as a charm offensive designed to strengthen relations with other regional and global heavyweights.
  • Uzbekistan’s posture regarding Russian pipelines traversing the country remained immovable despite a personal request from Vladimir Putin. In April of this year the Uzbek government blocked a series of pipelines designed to funnel gas from Russia to Kyrgyzstan, and Uzbek neighbor with which Tashkent maintains poor relations. Moscow is rumored to have expected a different answer to its request in light of its recent re-structuring of a large-scale debt deal with Tashkent.
  • Kazakhstan has opened up bidding to foreign companies interested in building prisons throughout the country. The invitation to prison developers is sure to create controversy given Kazakhstan’s poor human rights record and the autocratic tendencies of its leadership. Tenders on construction are expected to kick off in 2015 and on through 2016, with construction taking place thereafter. Kazakhstan is currently home to “42,000 prison inmates” though the number of pre-trial inmates, expected to be substantial, is not factored in.
  • Tajikistan could earn nearly $100mn USD if a new trans-Central Asia gas pipeline is constructed according to plan. The Tajik parliament ratified an agreement structured between the Tajik government and the joint venture Trans-Tajik Gas Pipeline Co. Ltd., which is co-owned by Tajik and foreign individuals. The agreement is expected to be signed into law by Tajik President Emomali Rahmon and would theoretically lead to the construction of a 400km segment traversing part of Tajikistan.
  • Iran and Tajikistan announced that they will continue to expand ties. Foreign ministers from both countries on the occasion of the Conference on World Against Violence and Extremism (WAVE), which was held in Tehran. Iranian foreign policy chief Javad Zarif stated that ties between the two countries will likely lead to economic and political agreements that extend to Afghanistan, the other Persian-speaking country in the region.

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