Kremlin urges central bank to cut interest rates: Russia in inflation trap!

Kremlin urges central bank to cut interest rates: Russia in inflation trap!

Russia is currently facing an alarming economic situation characterized by rising inflation and extremely high interest rates. The key interest rate is currently 21 percent, leading to record high borrowing costs. These high interest rates not only put a considerable strain on the economy, but also on the national budget. On June 6, 2025, the Russian Central Bank, led by Elvira Nabiullina, will make a crucial decision on the key interest rate as pressure on it from business owners and the Kremlin continues to grow fr.de reports.

Finance Minister Anton Siluanov has already said that inflation has been reduced enough to consider interest rate cuts. In fact, the inflation rate has risen to over ten percent since October 2024. Therefore, the Kremlin is calling for rapid implementation of interest rate cuts after the Central Bank had previously raised interest rates. Reports suggest that Nabiullina's specific interest rate policies are facing increasing criticism and her ability to control inflation to the four percent target is in question.

Growing tensions between the Kremlin and the central bank

In addition to the economic challenges, the Kremlin has focused on easing the Russian economy, but at the same time announced higher tariffs and persistently high interest rates. These contradictory measures have created tensions between the Kremlin and the central bank. President Vladimir Putin places some of the responsibility for the economic problems on Nabiullina and is demanding that she respond more quickly to rising inflation, which is being fueled by, among other things, material costs and the loss of European export markets.

An internal audit is being carried out to examine in more detail the impact of the central bank's monetary policy on inflation and investment. It is also worth noting that the government's high military spending is causing massive inflation. The military budget is set to increase in 2025, which could further fuel inflation. The Russian economy has moved sharply toward a war economy since 2022, with companies in the defense sector benefiting, although experts warn of overheating and labor shortages.

Risks for the banking sector

The Kremlin's strategy of granting cheap loans to companies linked to the war economy has resulted in an increase in toxic debt in the banking sector. This dangerous situation is exacerbated by Western sanctions, which are putting additional strain on Russia's economic strength. If the key interest rate is not reduced and inflation continues to rise, this could have devastating consequences for the entire Russian economy.

In conclusion, the coming decisions of the Russian Central Bank will be crucial. With a key interest rate decision currently under intense scrutiny, Russia's economic situation could soon change - either for the better or for the worse.