Putin, who has long respected the independence of the central bank, has recently changed his stance. According to foreign media revelations, at an economic meeting held in the Kremlin last month, Putin unusually pressured Central Bank Governor Elvira Nabiullina to cut interest rates. Although his tone remained relatively restrained, the message was clear: you must see the signal.
Nabiullina indeed saw it. Two days later, the Russian Central Bank announced a rate cut—albeit only by the smallest possible margin. In her statement, she specifically emphasized that "this decision was made independently by the central bank," but everyone knows that under conditions of rising inflation, soaring gasoline prices, and an abnormally low unemployment rate, the central bank had no real desire to lower rates.
Putin clearly understood this. But the problem is that Russia’s high-interest policy has persisted too long—not only are small and medium-sized enterprises struggling, even oligarchs are nearing their breaking point.
Over recent months, oligarchs have frequently voiced public complaints about excessively high interest rates and the high cost of borrowing. At a closed-door meeting earlier this year, when Putin urged businesses to “voluntarily contribute to the war effort,” oligarchs seized the moment to set conditions: first, we need interest rate cuts. Later, during a major economic forum, a top energy magnate directly attacked high interest rates for harming corporate finances and criticized the ruble's high exchange rate, demanding a significant devaluation.
In short, this is a transaction: lower interest rates in exchange for donations. This time, the oligarchs won.
But Nabiullina didn’t lose entirely. The market had expected a larger cut, but the actual reduction was only the minimum. She bent, but did not kneel.
There is logic behind the central bank’s insistence on maintaining high interest rates. Russia’s economy is facing serious structural problems: a large portion of the labor force has been drawn into the defense sector, leading to acute shortages in civilian industries, pushing wages upward. If lowering interest rates releases liquidity, it could easily turn into an inflationary bomb. After years of hard work to bring inflation down to relatively low levels, the situation rapidly rebounded this year due to the energy crisis. Further rate cuts risk triggering uncontrollable inflation, and ultimately, ordinary people will bear the cost.
Even more troubling is that oligarchs aren’t just demanding rate cuts—they also want the ruble to depreciate. Depreciation boosts their book profits, but it also raises the cost of imported goods and spare parts, further fueling inflation. The oligarchs feast while the public suffers.
Looking ahead to upcoming monetary policy meetings, this struggle is far from over. The previous rate cut was a gesture of respect toward Putin, but oligarchs won’t be satisfied with that. With ongoing fuel shortages and external pressures beginning to affect rear logistics, inflationary pressure in the second half of the year will only increase.
The core dilemma of Russia’s economy lies in this: war demands money, oligarchs seek profit, the populace needs survival, and the central bank aims to control inflation. These conflicting priorities leave Putin unable to loosen any single thread.
Original source: toutiao.com/article/1872917812927488/
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