Russia: Coverage Charge Raised to 18%

As of at this time:

For comparability, right here is the y/y (official) inflation fee (by means of June).

With the coverage fee at 18%, and y/y inflation at 8.6% (by means of June), we now have in essence a contractionary financial coverage. The ex put up actual fee was 7.4% in June. Assuming adaptive expectations, the ex ante actual fee for August onward is about 9.4%…(Central Financial institution of Russia tasks 9% inflation in July).

The mix of extraordinarily expansionary fiscal coverage (with heavy emphasis on warfare industries) plus provide shocks (sanctions on essential inputs, emigration, conscription) requires tight financial coverage to be able to preserve inflation below management.

For extra on the extent to which Russia is working a warfare economic system now, see BOFIT’s Heli Simola “Navy dominance will increase imbalances within the Russian economic system” (Could 2024). Two graphs:

See additionally my estimates of the expansion of the non-military economic system, right here.

It will likely be attention-grabbing to me to see how lengthy the economic system can face up to 9% or so actual charges with out experiencing a recession (or with out the federal government sacking the Central Financial institution governor).