UK intelligence points out challenges Russian economy faces amid war in Ukraine

UK Defence Intelligence has analysed the situation in the Russian economy amid the ongoing full-scale war in Ukraine.

Source: UK Ministry of Defence on X (Twitter); European Pravda reports

Details: The intelligence recalls the recent decision of the Russian Central Bank to raise the interest rate to 21%, the highest since the start of the full-scale invasion of Ukraine.

This level of interest rate reflects the Central Bank's concern about the growing inflationary pressures in the Russian economy.

Elvira Nabiullina, the Central Bank's governor, said that "more radical changes" in monetary policy may be needed to bring inflation under control.

However, key executives of Russian companies are increasingly criticising the Central Bank's decision to maintain high interest rates, the intelligence added.

The report notes that high interest rates in the Russian economy are likely to limit investment and business growth.

The volume of corporate loans and their share tied to the Bank's base rate have increased since the start of the war in 2022. As a result, higher interest rates lead to an increase in the cost of debt.

Quote: "These costs are highly likely exacerbating financial pressures on businesses, with corporate bankruptcies in Russia reportedly 20 per cent higher in 2024 than they were in 2023."

Details: The report suggests that inflationary pressures are likely to increase in 2025, as government spending is expected to rise, while labour shortages and sanctions pressure will continue.

This will lead to a growing need to find a compromise between efforts to contain inflation and support the growth of the Russian economy.

Background:

• Recently, the UK intelligence analysed the Russian army's drone strikes on Ukraine's oblasts during October and the first week of November.
• Prior to that, UK Defence Intelligence has indicated that North Korean troops involved in fighting against Ukraine would encounter interoperability issues with Russian forces and their equipment.

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