ISW: Kremlin likely pressuring Russia's Central Bank over war-related inflation

Analysts at the Institute for the Study of War (ISW) have suggested that the Kremlin is exerting pressure on Russia's Central Bank over high interest rates to curb inflation driven by its war against Ukraine.

Source: ISW

Details: ISW noted that, according to unconfirmed reports, tensions have arisen between Russian Central Bank Governor Elvira Nabiullina and the Kremlin over high interest rates and monetary policy during the war.

On 23 March, a Russian insider source reported that the Federation Council's Accounts Chamber, Russia's highest audit body, had recently launched an audit of the Central Bank of Russia. The audit aims to assess the bank’s monetary policy from 2022 to 2024 and the impact of interest rates on inflation, budget spending and investment.

The source claimed that the investigation was "effectively" an attack on Nabiullina, adding that a group of lobbyists from large Russian businesses is pushing for a lower interest rate.

"ISW cannot independently verify this insider source's claim and has not observed other reporting about the alleged audit," ISW analysts added.

However, the analysts did note that Russia's inflation is rising due to its full-scale invasion of Ukraine. In December 2024, the Russian Central Bank decided to keep the key interest rate at 21 per cent – the highest since 2003 – in an effort to curb inflation.

Quote: "The Russian Central Bank‘s interest rate through 2025 has remained relatively conservative despite significant and growing inflationary pressures.

The Kremlin has claimed in recent months that the inflation rate is about nine to 10 per cent, but these figures are likely far below the actual inflation rate, which is likely closer to 20 to 25 per cent.

Russia's current interest rate should likely be higher, and the Kremlin likely pressured the Central Bank to keep the rate at 21 per cent when the Central Bank should have increased it to curb inflation."

Details: Analysts suggest that Russian leader Vladimir Putin has also attempted to shift the blame for rising inflation onto the Central Bank, specifically targeting Nabiullina.

Quote: "The audit on the Central Bank may be part of the Kremlin's ongoing efforts to apply political pressure on the bank to prevent further interest rate hikes beyond the current rate of 21 per cent, manage the expectations and frustrations of the Russian business community, and further the Kremlin's narrative about Russia's economic stability.

The Kremlin’s continued manipulation of the Central Bank's decisions is likely hampering the Russian government's ability to enact sound wartime monetary policies."

To quote the ISW’s Key Takeaways on 23 March:

• US and Ukrainian officials are meeting in Riyadh, Saudi Arabia on the evening of 23 March to discuss the contours of the temporary moratorium on long-range strikes and a possible temporary maritime ceasefire in the Black Sea.
• Unconfirmed reports suggest that there is tension between Russian Central Bank Chairperson Elvira Nabiullina and the Kremlin over Russia's high interest rate and wartime monetary policies.
• Ukrainian forces recently advanced near Borova, and Russian forces recently advanced near Toretsk and Pokrovsk.

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