Russian Central Bank Surprises with Interest Rate Decision Amid Inflation Struggles

The Russian central bank maintained its key interest rate at 21%, defying expectations of a hike. The move reflects efforts to curb inflation spurred by military spending and sanctions-related economic strain. Business leaders criticize this, seeing high rates as dampening investment prospects in a challenging wartime economy.

The Russian central bank left its key interest rate unchanged at 21% on Friday, a move that caught markets off guard with many having anticipated a 2 percentage point increase. The decision, aimed at tackling inflation, came a day after President Vladimir Putin called for a "balanced" approach from the bank in light of economic pressures due to the Ukraine conflict.

Despite complaints from influential business figures about high interest rates stifling investment, the bank stated that the increase in interest rates had created necessary conditions for returning inflation to its target. Currently, inflation is at 9.5%, far exceeding the 4% target, but the central bank highlighted that its policies have already curbed lending and domestic demand.

As Russia's wartime economy grapples with Western sanctions and financial constraints, inflation remains a significant issue, compounded by military spending and currency instability. Business leaders continue to criticize the central bank's tight monetary policy, arguing that it hampers investment opportunities in a strained economy.

(With inputs from agencies.)