UK intelligence predicts further challenges for Russia's economy

UK Defence Intelligence assessed the state of the Russian economy in light of the Central Bank's decision to maintain the key rate at 21%, and expects a widening imbalance.

Source: UK Defence Intelligence update dated 3 January on X (Twitter), as reported by European Pravda

Details: The intelligence service pointed out that at a meeting on 20 December, the Central Bank of the Russian Federation decided to keep the key policy rate at 21%, and at the previous meeting in October, it raised it from 19% to 21% – the highest rate since the beginning of Russia's full-scale invasion of Ukraine.

UK intelligence noted that Russian businesses were increasingly criticising high interest rates, but inflationary pressures were likely to be increasing in part due to the recent depreciation of the rouble.

In November 2024, the rouble depreciated to its lowest rate against the US dollar since the full-scale invasion of Ukraine in 2022 (to 114 per US dollar).

The agency attributed the rouble's decline to the announcement of sanctions against Gazprombank, followed by the publication of economic statistics showing that the Russian economy was continuing to overheat. In response, the Central Bank of Russia announced that it would stop buying foreign currency until 2025.

However, the rouble exchange rate remained around 100 to the dollar until 20 December 2024, leading to widespread market expectations of another key policy rate hike.

"The CBR's decision to hold interest rates at the current level will likely add to the imbalances in the economy due to the inflationary effects of the depreciation, labour shortages and high government spending," the review concluded.

Background: 

• At the end of December, UK Defence Intelligence analysed a new Russian legislative initiative that states military personnel who sign a contract after 1 December 2024 will have their loan debt written off.
• In a previous update, UK Defence Intelligence analysed the change in the tactics of Russian missile attacks on Ukraine.

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