Page 21 - RusRPTAug24

Nevertheless, there is no overheating of the credit market in Russia (at least not yet). “When it comes to lending, overheating usually entails excess risks where someone has gone overboard with their debt,” the chief economist of a Russian bank told The Bell. “The issuing of credit has not slowed down as much as the regulator would like, but the problem here is not with the credit itself.”
Why can’t the economy be cooled?
The main culprit for overheating is the state, which is spending record amounts amid the war in Ukraine. According to analysts from the Gaidar Institute, budget expenditures in 2022 and 2023 went up 17.2% and 14.2% respectively. That caused the share of government spending in Russia’s GDP to rise from 34.7% in 2021 to 36.6% in 2023.
In an attempt to cool the economy and stabilize inflation, which reached 8.6% at the end of June, the Central Bank has held interest rates at 16% for more than six months. Reports suggest some members of the Bank’s board of directors want to see further rises, perhaps up to 18%. This is approaching the 20% rate introduced at the start of the war in Ukraine (although it was quickly lowered). Analysts at most of Russia’s top banks anticipate that the Central Bank is going to raise interest rates in the coming months.
In theory, high rates should cool the economy – the higher interest rates, the more expensive it is to borrow (which dampens demand and inflation). Right now, though, this
21 RUSSIA Country Report August 2024 www.intellinews.com