The decision by Russia’s central bank to increase its policy rate by 350bp, to 12.00%, at an unscheduled meeting today underscores the challenges that policymakers are now facing to maintain macroeconomic stability in an economy that is being distorted by military spending. With President Putin seemingly unwilling to curb the government’s war effort, the macro imbalances that have built up this year are likely to persist. We think the coming months will be characterised by further currency falls, and higher inflation and interest rates.
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