Russia’s economy is struggling under the weight of the ongoing war in Ukraine and Western sanctions. The Central Bank of Russia recently raised its key interest rate to 19% and may increase it to 20% by the end of October to curb persistent inflation, which reached 9% in August, far above the 4% target. This inflation, along with a sharp decline in the value of the ruble, is driven by both internal and external factors such as record military spending, labor shortages, and difficulties in international trade due to sanctions.
Since June, Russia suspended exchange trading in U.S. dollars and euros due to U.S. sanctions, causing the ruble to lose significant value against the yuan, dollar, and euro. The bank has been forced to use foreign exchange reserves and allow the ruble to weaken, indicating severe pressures on the balance of payments. High borrowing costs are also restricting banks, while military spending, expected to rise by 25% to $140 billion, is creating unsustainable economic imbalances.
Experts argue that these factors—along with disruptions in trade with key partners like China and Turkey—are inflating the prices of imported goods and further complicating Russia’s ability to stabilize its economy. Although gold reserves might offer some relief, Russia’s overall economic situation remains precarious as the cost of the war continues to mount.
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Summary:
Russia’s economy is struggling under the weight of the ongoing war in Ukraine and Western sanctions. The Central Bank of Russia recently raised its key interest rate to 19% and may increase it to 20% by the end of October to curb persistent inflation, which reached 9% in August, far above the 4% target. This inflation, along with a sharp decline in the value of the ruble, is driven by both internal and external factors such as record military spending, labor shortages, and difficulties in international trade due to sanctions.
Since June, Russia suspended exchange trading in U.S. dollars and euros due to U.S. sanctions, causing the ruble to lose significant value against the yuan, dollar, and euro. The bank has been forced to use foreign exchange reserves and allow the ruble to weaken, indicating severe pressures on the balance of payments. High borrowing costs are also restricting banks, while military spending, expected to rise by 25% to $140 billion, is creating unsustainable economic imbalances.
Experts argue that these factors—along with disruptions in trade with key partners like China and Turkey—are inflating the prices of imported goods and further complicating Russia’s ability to stabilize its economy. Although gold reserves might offer some relief, Russia’s overall economic situation remains precarious as the cost of the war continues to mount.