Russian Railways Struggles Under Rising Interest Rate Pressure

Russian Railways faces escalating interest payment costs, projected to reach $7 billion in 2024, driven by high rates impeding investment. The company, a crucial part of Russia's logistics, battles interest rates affecting profitability amid economic pressures from military spending and inflation, as central bank strategies remain contentious.

Russian Railways, a pivotal entity in Russia's logistics, forecasts a substantial surge in interest payment costs, expected to reach $7 billion next year. This increase, evident from internal documents obtained by Reuters, highlights the financial strain caused by skyrocketing interest rates, currently at 21%, which businesses and government officials attribute to stunted investment growth.

Despite Russia's economic recovery from Western sanctions post-2022 Ukraine invasion, growth now hinges heavily on military spending, fueling inflation and consumer spending, subsequently causing economic overheating. The Bank of Russia is combating this with elevated interest rates, arguing that labor shortages underpin persistent inflation. The central bank's governor, Elvira Nabiullina, fervently defended the banking sector and her monetary policies, amidst increasing criticism.

Russian Railways, Russia's largest employer, braces for continuous interest rate highs, anticipated to average 17-20% in 2025, further burdening its financial outlook. The company's debt, tied to central bank rates, poses significant challenges as interest burdens hit a five-year peak, and debt refinancing at increased rates appears inevitable. This scenario, compounded by impending corporation tax hikes, threatens Russian Railways' profitability and strategic investments.

(With inputs from agencies.)