Research & Insights #41

Bank of Russia raises key rate to 16% per annum
The Bank of Russia raised its key interest rate from 15% to 16%, stressing that restoring inflation to the 2024 target requires maintaining tight monetary conditions. Russia’s GDP growth will exceed 3% by the end of the year, and economic activity is growing much faster than expected in October, said the Central Bank. The Russian institution has also maintained its inflation forecast for 2023 at 7-7.5%. Elvira Nabiullina, Governor of the Bank of Russia, admitted that the key rate should have been raised earlier than the regulator did, she said in an interview with Russian media outlet RBC. Throughout 2023, the Bank of Russia raised the key interest rate from 7.5% to 16% per annum. At the final meeting of the year, Ms. Nabiullina declared that the rate hike cycle was nearing its end.

How Russia saved the 2023 budget
According to German economist Janis Kluge, Russia has saved its 2023 budget thanks to the weakening ruble. The depreciation of the Russian currency led to higher-than-expected budget revenues, mainly from taxes on oil and gas imports and exports. Import-related taxes exceeded initial forecasts due to higher-than-expected imports and the weakening of the ruble. Despite Western sanctions, Russia’s oil and gas revenues were boosted by the weakness of the ruble, offsetting the reduction in oil export volumes. War-related expenditure has accelerated in 2023, with defence spending expected to reach 10.8 trillion rubles in 2024. The budget deficit for 2023 is expected to be at the level of 1.5% of GDP, Russian Finance Minister Anton Siluanov recently said. The outlook for 2024 is seen as contingent on factors such as oil prices, the effectiveness of capital controls, and the ability to manage inflation. 

G7 moves closer to seizing Russian assets for Ukraine
With the willingness to financially support Ukraine waning in both the United States and Europe, Western countries are considering ways of getting their hands on the assets of the Russian central bank. Until now, G7 governments have been reluctant to take such a step, fearing repercussions for some of the foreign investors holding US dollar- and euro-denominated assets. The seizure of Russian assets, including funds belonging to millions of private investors, and restrictions on international payments, have been the most “painful” sanctions imposed by Western countries, Russian central bank head Elvira Nabiullina said recently. Around 5 million private Russian investors saw their assets blocked in accounts of international financial institutions. 

Trade between China and Russia is booming 

China’s President Xi Jinping pledged to “amplify” ties with Moscow during a meeting with Russian Prime Minister Mikhail Mishustin as the two sides continue to deepen relations. “Maintaining and developing China-Russian relations well is a strategic choice made by both sides on the basis of the fundamental interests of the two peoples,” Xi said during the meeting in Beijing. The countries reached an annual trade volume of US$200 billion last month and have also almost completely stopped using the US dollar as a means of payment, said Mishustin. Over 90% of trade is now settled in yuan or rubles, according to media reports. China’s share of trade settlements in yuan rose from 15% at the end of 2021 to 27% in September 2023, according to estimates by Bloomberg Economics, with Russia likely to be the biggest contributor.

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