Russia's Central Bank Hikes Interest Rate to Combat Inflation amid Military Spending Surge

Russia's central bank raised its key interest rate to 21% to curb growing inflation exacerbated by increased military spending and economic strain. The bank noted domestic demand surpassing supply capabilities and suggested potential future rate hikes. The economy's performance remains bolstered by oil exports and military-driven growth.

In a decisive move to tackle soaring inflation, Russia's central bank announced its highest-ever key interest rate increase, raising it to a record 21% on Friday. This hike aims to counter the economic impact of substantial military spending that has strained Russia's capacity to meet domestic demand.

According to the central bank, the current inflation rate surpasses earlier forecasts, driven by a widening gap between strong domestic demand and limited goods and services supply. The bank suggests the possibility of yet another rate increase in December to further address the growing economic pressure.

The economy has shown resilience, growing 4.4% in the second quarter of 2024, supported by oil export revenues and military-related production. However, ongoing sanctions continue to challenge Russia's economic landscape as the nation navigates international constraints and domestic fiscal demands.

(With inputs from agencies.)