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Russia hikes interest rates to 15% as inflation soars

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The Central Bank of Russia has raised its key interest rate to 15% in an effort to tackle inflation and support the struggling rouble, marking the fourth consecutive increase. The unexpected two-percentage-point hike was prompted by the persistently high global inflation rates, partly triggered by Russia’s military intervention in Ukraine, which has led to a 6% inflation rate in Russia as of September.

The country has been experiencing escalated government spending directed towards its military efforts, contributing to the recent inflationary pressures. With the latest hike, the Bank of Russia has cumulatively raised the rates by 7.5 percentage points since July, aiming to stabilize inflation at the targeted 4% level. The decision for the emergency rate hike in August was prompted by the rouble’s decline, which fell below 100 against the US dollar, necessitating a tighter monetary policy.

The global supply chain disruptions during the pandemic, coupled with the repercussions of Russia’s invasion of Ukraine, have notably impacted food and energy prices, driving the overall inflation up. Additionally, the imposition of Western sanctions on Russia in response to its actions in Ukraine has had adverse effects on the country’s economy, causing a significant depreciation of the rouble. The sanctions have led to constraints on Russia’s trade, with several European countries seeking alternative energy suppliers and implementing measures to limit Russia’s oil export earnings.

Despite the successive rate hikes, there are concerns that Russia may encounter challenges in attracting foreign investment due to the ongoing sanctions. The exclusion of Russia from the Swift international payment system has further added to the economic strain. Nonetheless, the European Commission has affirmed that the sanctions are effective in exerting pressure on Russia.

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Russia formally withdraws from the grain contract with Ukraine

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Russia has informed the United Nations, Turkey, and Ukraine that it will not extend a crucial grain deal that allowed Ukraine to export grain through the Black Sea. Kremlin spokesperson Dmitry Peskov stated that the agreements had effectively ended on Monday. The deal permitted cargo ships to pass through the Black Sea from the Ukrainian ports of Odesa, Chornomorsk, and Yuzhny/Pivdennyi. However, Russia stated that it would reconsider the agreement if certain conditions were met.

Russian President Vladimir Putin had previously expressed dissatisfaction with parts of the deal, claiming that the export of Russian food and fertilizers had not been fulfilled. He specifically mentioned that grain had not been supplied to poorer nations, which was a condition of the agreement. Russia also complained about Western sanctions limiting its agricultural exports and repeatedly threatened to withdraw from the deal.

On Monday, the Russian foreign ministry reiterated these concerns, accusing the West of “open sabotage” and prioritizing commercial interests over humanitarian goals. Turkish President Recep Tayyip Erdogan expressed his belief that Putin still wanted to continue the agreement and stated that they would discuss its renewal during their upcoming meeting.

The grain deal is significant because Ukraine is one of the world’s largest exporters of sunflower, maize, wheat, and barley. Following Russia’s invasion in February 2022, Ukrainian ports were blockaded, trapping 20 million tonnes of grain and causing a sharp increase in global food prices. The blockade also posed a threat to food supplies in Middle Eastern and African countries heavily reliant on Ukrainian grain.

Nikolay Gorbachev, the president of the Ukrainian Grain Association, mentioned that alternative methods of exporting grain had been identified, including through Danube River ports. However, he acknowledged that these ports would be less efficient, leading to reduced grain exports and increased transportation costs.

Western leaders swiftly criticized Russia’s decision, with EU Commission President Ursula von der Leyen condemning it as a “cynical move” and emphasizing the EU’s efforts to ensure food security for vulnerable populations.

Russia’s announcement coincided with Ukraine claiming responsibility for an attack on a bridge in Crimea that resulted in the deaths of two civilians. Peskov stated that Russia’s decision to let the deal expire was unrelated to the attack, as President Putin had already declared the position before the incident.

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SCO summit: Putin says sanctions making Russia stronger

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Russian President Vladimir Putin has reiterated his country’s opposition to Western sanctions following the invasion of Ukraine.

Speaking at the virtual Shanghai Cooperation Organisation (SCO) summit, his first international address since the recent mutiny in Russia, Putin expressed defiance towards the West, stating that Russia would counter external sanctions and pressures while continuing to develop. He emphasized the importance of trade agreements between SCO nations in local currencies, seen as a measure to mitigate the impact of sanctions. Putin also welcomed Belarus’s application to become a permanent member of the SCO. Indian Prime Minister Narendra Modi, hosting the summit, called for increased trade, connectivity, and tech cooperation among member states.

However, he did not directly address the war in Ukraine or China’s assertiveness in the Indo-Pacific, reflecting India’s delicate diplomatic position as it strengthens ties with both the West and China. Instead, Modi urged SCO members to cooperate on countering cross-border terrorism, with his statements commonly interpreted as aimed at Pakistan. China’s President Xi Jinping emphasized the importance of regional peace and security and called for solidarity and mutual trust among SCO members. All members agreed on the need to maintain stability in Afghanistan following the Taliban’s takeover.

The SCO, formed in 2001 by China, Russia, and four Central Asian countries, has gained relevance as relations with the West deteriorate for Russia and China. With around 40% of the world’s population and over 20% of global GDP, the SCO holds significant potential, and the inclusion of Iran as a full member further enhances its energy portfolio.

However, India’s ability to strike a diplomatic balance between its global partners, including Russia, China, and Pakistan, will impact the future of the SCO. Indian diplomats assert their commitment to an independent foreign policy without favoring any particular group.

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