Mass disinformation campaigns and an iron rule may be enough to prevent the Russian people from overthrowing Vladimir Putin, but the country’s business elites are unlikely to suffer vanishing profit margins for long.
Last June, 100 units of the currency bought $1.85 at the peak of Russia’s exploitation of skyrocketing prices for its energy exports. This has fallen to $1.21 today.
Combined with labour shortages this has the effect of intensifying inflationary pressures, and the Russian central bank has indicated it may have to hike the country’s interest rate for the first time since the early days of the war.
Alarm bells have been sounded by foreign analysts and policymakers in Moscow before, but the Russian economy has so far been able to defy doomsayers.
This time, however, the situation on the home front is heating up just as Ukrainian forces claim the first victories in their long-anticipated counteroffensive.
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Bank of Russia governor Elvira Nabiullina said at a press conference on Friday: “The option of hiking the rate was considered, but by consensus we decided to hold the rate, but tighten the signal.
She added that the “likelihood of a rate hike has increased”, according to Reuters.
This comes as Russian inflation – which breached 20-year highs in 2022 but has since fallen below the Bank’s four percent target – jumped sharply and and is expected to increase once again from 3.5 percent to between 4.5 and 6.5 percent by the end of 2023.
The Bank claimed: “Accelerating fiscal spending, deteriorating terms of foreign trade and the situation in the labour market remain pro-inflationary risk drivers.”
Indeed, data show the Russian workforce has been considerably depleted by Putin’s calling up of 300,000 troops last year – with hundreds of thousands more expected to follow this year. A recent study estimated 1.3 million young workers left the labour force last year alone in what it called a “massive brain drain”.
The Russian autocrat may have been able to brush off these setbacks as necessary in the face of successfully prising Ukraine from NATO’s clutches and bringing it back under the Kremlin’s wing, but the tide of the war has taken a significant turn of late.
On Monday, the Ukrainian military claimed to have liberated three villages in the eastern region of Donetsk – annexed by Moscow last September.
President Zelensky first confirmed the counter-offensive was underway on Saturday, and his forces have since begun advancing in the country’s south. The Kremlin has so far only acknowledged repelling Ukrainian assaults from the area.
