The Central Bank of Russia today raised the policy rate from 19% to 21%.
That’s assuming (1) adaptive expectations, and (2) the inflation rate is accurately measured. (h/t Anders Aslund) One might suspect that y/y inflation through September was actually higher than the reported 8.6%, but who knows. (The Central Bank has an October estimate of expected inflation of 13.4%, via TradingEconomics – I’ll take their word for it, as I can’t read Russian so I don’t know the characteristics of this estimate.)
Interestingly, while Russian GDP is expected to hit 3.5% growth this year, BOFIT’s forecast is for 1% in 2025 and 2026 (IMF October WEO indicates 3.6% for 2024, 1.3% for 2025). These forecasts predate the increase in policy rates today (although presumably they were to some extent anticipated).
OK if the nominal rate = 21% and expected inflation = 13.4% than the ex ante real rate = 7.6%. Now that sounds about right given the fiscal stimulius from Russian military Keynesianism.
Of course forever confused Steven Koptis will read this as saying inflation is near 19%. His reasoning is something akin to getting his panties all twisted around his ankles but I’m sure he will use a lot of terms he does not even remotely understands!
I say Russia/Putin is kaput. Even if Putin’s puppets Trump and Elon Musk/Peter Theil get elected and cut off all funding for Ukraine – the economic and demographic course of decline for Russia has been set for the next decade. Current Russian causalities are estimated at 680,000. Another 1 to 1.5 million have left Russia – they have no desire to be thrown into the meat grinder – Putin is now seeking out North Korean conscripts – where the survival rate of front line units is 2%. Can you imagine the morale of these NK units that do not speak Russian? Russia’s birth rate is at its lowest since 1999 with the number of live births falling under 100,000 in June and Putin has instituted a Special Operation to increase the birth rate by wrapping newborns in the country in a Russian flag after birth. https://www.msn.com/en-us/news/world/putin-mps-bizarre-drive-to-wrap-newborn-babies-in-russian-flag/ar-AA1sF02K
By the way – why does the U.S. give out millions in govt contracts to Russia asset Elon Musk? https://www.cnn.com/2024/10/25/politics/video/wsj-putin-elon-musk-digvid (and people wonder why Musk and Thiel are funneling millions to Trump)
Also – why isn’t the corporate media demanding that Trump release his medical records – when he regularly does “sundown” routines on stage – rambling about the “enemies within” , dancing/swaying around silently to music for 40 minutes during a townhall, going on for 15 minutes about a dead golfers genitalia, and forgetting he was holding a rally in Traverse City Michigan?
Russia was a kleptocratic plutocracy with nukes – funded by oil and gas. Putin has turned it into a failing state with nukes. His war has pushed Europe to shift away from importation of Russian hydrocarbons, and his attempt to get long term contracts with China has failed. So even after this war has ended, Russian income from energy will be drastically reduced. Since Russia used the past hydrocarbon boom to finance kleptocrats indulgences, rather than development of the future, there is nothing left to grow the Russian economy – or to pay its increasing national debt.
My prediction is that two decades from now the economy of Ukraine will be bigger than Russia’s. Ukraine is being forced to develop a world class military drone industry and an interconnected system of micro-grids. Legal protections and fighting corruption in Ukraine has also been forced on them as a result of the attack by Russia. All of that would be locked in with membership in NATO and EU – and they would finally escape the USSR death-grip.