Russia’s central bank is sounding the alarm about the economy as the ruble’s decline and record labor shortages add to inflationary pressures

• Russia’s central bank sounded the inflation alarm amid ruble decline and record labor shortages.

• Policymakers held interest rates steady on Friday but signaled that a hike could be coming soon.

• “The option to raise the price was considered, but we unanimously decided to keep the price, but tighten the signal.”

Russia’s central bank sounded the alarm about the economy on Friday as the ruble’s decline and record labor shortages added to inflationary pressures.

Policymakers kept the benchmark interest rate steady at 7.5%, where it has been since September, but indicated that a hike could be coming soon.

“The option to raise the price was considered, but unanimously we decided to maintain the price, but tighten the signal,” Governor Elvira Nabiullina said at a press conference. According to ReutersHe added that “the possibility of an interest rate hike has increased.”

In fact, central bankers have discussed a 25-75 basis point increase, she said. This while data released on Wednesday showed that weekly consumer prices jumped sharply.

The rate hike would be the first since the central bank raised its key rate to 20% in the wake of Russia’s invasion of Ukraine last year, when it sought to stabilize the ruble and financial markets after Western sanctions froze the Kremlin’s currency reserves.

Since then, the central bank has cut interest rates again as inflation has slowed. But its new forecast expects inflation to accelerate to 4.5%-6.5% by the end of the year, up from 3.5%.

The central bank said on Friday that “the acceleration of fiscal spending, the deterioration of foreign trade terms and the situation in the labor market are still factors in favor of inflation risks,” noting that inflation risks tend more to the upside.

The warning comes in the form of Russia has turned into a total war economyWhile the recently launched counter-offensive in Ukraine indicates an increase in defense spending by the Kremlin.

Meanwhile, the ruble has fallen against the dollar about 14% so far in 2023, making imports more expensive and driving up inflation. On Friday, the ruble fell, surpassing 83 against the dollar, its lowest level in more than two months.

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Other data shown Russia suffers from a record shortage of labor Vladimir Putin’s war on Ukraine has sent a major shock to the workforce. The army mustered 300,000 troops last year and plans to mobilize hundreds of thousands more this year, while an estimated 200,000 have been killed or wounded in Ukraine.

The mass exodus of Russians to other countries to escape military service or economic hardship also made the labor shortage worse. One recent study estimates that 1.3 million young workers Last year’s workforce was left alone, representing “Massive brain drain. “

Labor shortages also contributed to a Sharp decline last month in Russia’s industrial productionwhich fell by 5% from the previous month.

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