Putin States Russia Faces Significant Economic Challenges and Must Control Inflation, According to Reuters

Moscow – On Tuesday, Russian President Vladimir Putin expressed concern over rising inflationary risks and directed the government and central bank to manage the situation effectively. The impact of increasing prices on citizens’ living standards is particularly significant for Putin as he approaches a bid for re-election next March for another six-year term in office.

The Russian budget is currently strained due to what Putin refers to as a "special military operation" in Ukraine, which has forced the central bank to raise interest rates in response to a decline in the rouble’s value. Speaking to government officials in a televised address, Putin noted the exceptional nature of the challenges being faced.

While he indicated that the overall economic situation was stable, he emphasized the need for careful monitoring and prompt action. After experiencing double-digit inflation in 2022, the rate of price increases slowed in the spring, but inflation has recently surpassed the central bank’s target of 4% and continues to rise.

Factors such as a widening budget deficit and a significant labour shortage have contributed to ongoing inflationary pressure throughout the year. When the rouble fell below 100 to the dollar last week, the central bank reacted by increasing interest rates by 350 basis points to 12%. Following this intervention, the rouble recovered significantly, aided by exporters increasing their foreign currency sales after discussions with authorities.

Putin remarked that financial market volatility has hindered companies’ investment decisions and underscored the necessity of stabilizing this situation. He urged the government and central bank to utilize all available tools, focusing on curbing unproductive speculative demand, controlling capital outflows, and monitoring key financial market participants.

He also highlighted the importance of maintaining high levels of industrial output. Rising military expenditures are contributing to a modest economic recovery this year, reflected in increased industrial production, but have already led to a budget deficit of approximately $29 billion, exacerbated by declining export revenues.

Putin mentioned that the budget is expected to show a surplus for the July to September period, stating, "For the year as a whole, the excess of expenditure over income will be at the planned level – around 2% of GDP."