Russia’s economy slows sharply as deficit widens and costs mount

Russia’s central bank cut its benchmark interest rate by one percentage point to 17% on Friday, seeking to support the economy as growth slows and war costs widen the deficit.

The step reverses part of the emergency tightening that took the key rate to 21% to fight inflation. Officials moved after complaints from business leaders that high borrowing costs were hurting activity.

Even after the cut, the bank warned of persistent price pressures. It said inflation eased somewhat in July and August but remains high at 8.2%. The bank said, “Inflation expectations have not changed considerably in recent months.”

It added, “In general, they remain elevated.” “This may impede a sustainable slowdown in inflation.”

The gap between easier policy and tough inflation language shows frictions in the economy.

The central bank is trying to restrain prices while the finance ministry injects cash through defense orders and military recruitment bonuses that have lifted growth, wages, and prices over the 3 1/2-year war against Ukraine.

Russia’s economic growth slows sharply in Q2

On an annual basis, growth slowed to 1.1% in the second quarter, down from 1.4% in the first quarter and from 4.5% at the end of last year. Compared with the prior quarter, second-quarter output fell 0.6%.

From January to July, the deficit stood at 4.9 trillion rubles, up from 1.1 trillion rubles a year earlier.

According to the Kyiv School of Economics, which tracks Russia’s budget and oil revenues, spending reached 129% of the plan. Oil and gas takings fell 19% from a year earlier, in part due to slack global oil prices.

Despite sanctions and the loss of most gas sales to Europe, the economy has held up better than expected. Joblessness is at a record low, and household incomes are rising. To finance the deficit, the government has sold ruble bonds to domestic banks, which have been eager buyers expecting rates to keep falling.

UK hits Russia’s oil revenues with new sanctions

Cryptopolitan reported recently that Russia launched its biggest strike in months on Ukraine, hitting a key government building. Hours later, the Trump administration and the EU signaled new sanctions together.

Meanwhile, the UK announced 100 new sanctions targeting Russia’s revenues and its “shadow fleet,” unveiled in Kyiv by Foreign Secretary Yvette Cooper.

London said it follows the largest air attack of the war on Ukraine, with more than 800 missiles and drones fired in a single night. Officials said Russia launched 6,500 drones and missiles in July alone, 10 times the level a year ago, with recent strikes hitting the Ukrainian cabinet of ministers, damaging the British Council and EU delegation buildings in Kyiv, and violating Nato airspace over Poland.

On Friday, sanctions were imposed on 70 additional ships in the “shadow fleet.” Another 30 entities and individuals accused of supplying electronics, chemicals and explosives used to manufacture missiles and other weapons systems were also targeted.

Those targeted include China-based Shenzhen Blue Hat International Trade Co. and its Russian co-owners, Elena Malitckaia and Alexey Malitskiy, along with Turkey-based MastelMakina İthalat İhracat Limited Şirketi and its chief executive, the Azerbaijani national Shanlik Shukurov.

“International action to increase economic pressure on Russia and to cut off critical cash flows, which he desperately needs to pay for this illegal war is vital. These sanctions form the next stage in the UK’s leading efforts to ramp up economic pressure alongside our security support and our work alongside the coalition of the willing for a just and lasting peace in Ukraine,” Cooper said.

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