Russia's economy in crisis: Does the central bank need to act now?

Russia's economy in crisis: Does the central bank need to act now?

The Russian economy is currently showing mixed signals, while inflation is falling slightly. Economy Minister Maxim Reshetnikov has called on the central bank to cut key interest rates to encourage investment. The current key interest rates have been at 21 percent since October 2024, which is hindering many investments. In April 2025, the inflation rate fell to 10.2 percent, after being 10.3 percent in March. Reshetnikov presents an optimistic forecast and expects annual inflation of 7.6 percent for 2025. According to weekly inflation data, a range of three to four percent is observed, while May data will be available soon. Despite these positive signs, the Russian central bank continues to keep interest rates at 21 percent and warns of new risks that could weigh on the economy, such as falling demand.

One of the biggest challenges facing the Russian economy is the decline in revenue from oil and gas sales. The price of a barrel has fallen from $70 to below $50, leading to massive cuts in government investment programs. The aviation sector as well as research and technology are particularly affected. These cuts could have long-term effects on Russia's economy, which still depends on energy-based revenues.

Geopolitical risks and market reactions

The announcement of new sanctions from the USA caused significant falls on the Russian stock markets. US President Donald Trump has threatened new sanctions, but has shown the first signs of rapprochement with Russia since February. Despite the uncertainties, Vladimir Putin reiterates that Russia's economy ranks fourth in the world in terms of purchasing power parity. In recent years, Russia's economy grew by 4.1 percent in 2023 and 4.3 percent in 2024, which is remarkable considering the current challenges.

The Russian Central Bank has also cited inflation and the weak ruble as the main reasons for the high inflation in Russia. Control over these economic factors is considered crucial to ensure the stability of the country. Given these circumstances, it remains to be seen what measures the government will take to stabilize economic growth and further reduce inflation. Developments in the coming months will have to be closely monitored by market experts.

For more information about the current economic challenges facing the Russian economy you can FR and Mirror visit.