Russia Battles Inflation with Record Interest Rate Hike

Russia's central bank raised the key interest rate to 21% to curb inflation driven by military spending and strong domestic demand. Inflation rates exceed forecasts, prompting potential further hikes. Meanwhile, economic growth persists due to robust oil revenues and government spending, despite rising borrowing costs.

In response to surging inflation, Russia's central bank has raised its key interest rate by two percentage points to an unprecedented 21 percent.

This move comes amid increased government military expenditures, which strain the economy's production capacity and elevate workers' wages. Domestic demand continues to outpace supply, further fueling inflationary pressures.

Despite these challenges, Russia's economy is buoyed by sustained oil export revenues and military-related spending, even as borrowing costs rise and inflation rates exceed the central bank's July forecasts. Additional rate hikes could be on the horizon as the bank aims to stabilize prices.

(With inputs from agencies.)