The president of the Russian central bank, Elvira Nabiullina, warned that the country’s economy was at risk of overheating. In order to cool down inflation, the Bank of Russia raised the main interest rate from 15 percent last Friday. up to 16 percent
Russia’s sanctions-battered economy has appeared remarkably resilient throughout the nearly 22 months of war with Ukraine. In fact, Russia’s economy is at risk of overheating, warned Elvira Nabiullina, governor of the country’s central bank, as she raised the country’s key interest rate to 16 percent last Friday.
Inflation is evidence of overheating of the economy
“The economy is growing so fast because it is using almost all available resources,” Nabiullina said. “Persistently high inflation is evidence that the economy has moved beyond its potential and is unable to meet growing demand,” she added.
Russia recorded a GDP growth of 5.5%. in the third quarter of this year, which means a reversal of the decline of 3.5%. during the same period last year, while unemployment has reached record lows as many have left the country or are fighting in the war.
Inflation in Russia
Reports suggest that much of the country’s growth is due to massive military and government spending. According to official statistics, economic growth in Russia resulted in inflation, which reached 7.48 percent in November, up from 6.69 percent. in October.
The Russian central bank is therefore trying to cool the economy and tame inflation by using higher interest rates, which are aimed at limiting demand and slowing down price increases. The country’s medium-term inflation target is 4%.
“Let’s imagine the economy like a car. If we try to drive faster than the car’s specifications allow, the engine will sooner or later overheat and we will not be able to cover a long distance. Maybe we will go fast, but for a short period of time,” Nabiullina explained.