Saint Petersburg (AFP) – Russian officials sparred publicly on Friday over how to boost the economy, as growth slows more than three years into its Ukraine offensive. Moscow had shown unexpected economic resilience in 2023 and 2024, despite the West’s sweeping sanctions, with massive state spending on the military powering a robust expansion.
But economists have long warned that heavy public investment in the defence industry is no longer enough to keep Russia’s economy growing. Businesses and some government figures have urged the central bank to further cut interest rates to stimulate activity. “The indicators show the need to reduce rates,” Deputy Prime Minister Alexander Novak said at Russia’s flagship economic forum in Saint Petersburg.
“We must move from a controlled cooling to a warming of the economy,” said Novak, who oversees Russia’s key energy portfolio in the government. He described the current economic situation facing the country as “painful”. The call for more cuts to borrowing costs comes a day after Moscow’s economy minister warned the country was “on the verge of a recession”.
“A simple and quick cut in the key rate is unlikely to change anything much at the moment, except for…an increase in the price level,” the central bank’s monetary policy department chief Andrey Gangan said. The central bank lowered interest rates from a two-decade-high earlier this month, its first cut since September 2022. The bank, which reduced the rate from 21 percent to 20 percent, said at the time that Russia’s rapid inflation was starting to come under control but monetary policy would “remain tight for a long period”.
The central bank has resisted pressure for further cuts, pointing to inflation of around 10 percent, more than double its four-percent target. Russia’s gross domestic product (GDP) growth slowed to 1.4 percent year-on-year in the first quarter, the lowest quarterly figure in two years. Russian President Vladimir Putin, who has typically been content to let his officials argue publicly over some areas of economic policy, is set to speak on Friday afternoon at the plenary session of the economic forum.
© 2024 AFP
