The increase takes rates above an emergency level introduced in February 2022 – just after Moscow ordered troops into Ukraine – to their highest since 2003, with the regulator battling to stem the economic fallout of the conflict.
Yet, despite the high inflation and Western hopes sanctions would cripple the Russian economy, the Kremlin is set to ramp up military spending yet again next year and analysts say Moscow has enough money to keep fighting in Ukraine for the foreseeable future.
Governor Elvira Nabiullina said the pace of price rises – running at an annual rate of 8.6% in September – was not slowing and that further rate rises may be necessary.
“Firstly, inflation. In general, we do not see any signs of it slowing down,” she told reporters in Moscow.
“To contain accelerating price growth, we will need much tighter monetary policy over the next year,” she added.
Without mentioning the Ukraine offensive, the bank directly blamed high government spending for pushing inflation higher.
“Additional fiscal spending and the related expansion of the federal budget deficit in 2024 have pro-inflationary effects,” it said in a statement announcing the rate rise.
The bank also said it would not be able to bring inflation back to its 4% target until at least 2026.
Growth boom, inflation woes
Stubborn inflation, a volatile currency and historically high borrowing costs over the past two years have not deterred the Kremlin from ramping up spending on the military campaign.
Russia has more than US$300 billion in reserves that have not been frozen by the West, a low debt-to-GDP ratio of around 15% and is pushing through major tax rises next year to help cover a deficit.
Lawmakers voted Thursday to increase military expenditure by almost 30% to around US$145 billion in 2025.
Combined spending on defence and security is set to account for 40% of Russia’s total budget.
The spending boom has powered the economy, with the International Monetary Fund this week raising its growth forecast for Russia in 2024 to 3.6%, but it has also triggered domestic headwinds.
Hundreds of thousands of men have been called up to fight, fled the country or been recruited by the booming domestic arms industry – leading to a cycle of spiralling wages and prices that the central bank has warned undermines stability.