In what appears to be a calculated but catastrophic gamble, Russia’s Central Bank this week plans to jack up its key interest rate from today’s already crushing 21% to a further punishing 25%, sparking fears of impending economic collapse. Normally towing the party line, even the Putin regime’s Pro-Kremlin economists are now warning that the move could unleash a tidal wave of corporate bankruptcies, threatening the survival of entire sectors of the Russian economy.
According to Russia’s Center for Macroeconomic Analysis and Short-Term Forecasting, the hike will force countless businesses — particularly in the already-struggling manufacturing sector — into default. The share of companies with dangerously high debt loads is expected to double, while payment delays between firms are becoming the norm, creating a vicious cycle of insolvency and credit freezes.
The Central Bank defends the move as a necessary purge of “inefficient enterprises,” but industry insiders see nothing but disaster on the horizon. Sergey Chemezov, head of state-owned giant Rostec, issued a stark warning that the skyrocketing cost of credit could paralyze exports and trigger a wave of closures among Russia’s industrial heavyweights.
With economic activity grinding to a halt and inflation still raging, analysts fear Russia could be heading for full-blown stagflation — a worst-case scenario that could shatter the nation’s already fragile economy. Unless the Central Bank reverses course or the government steps in with sweeping bailout measures, the country may face an economic reckoning unlike anything seen in decades.
Just in the past week, we have seen industry insiders from several of the most important sectors of the Russian economy sounding the alarm of looming catastrophe.
Among them, the largest furniture manufacturer, the aviation manufacturing industry, the largest producer of consumer electronics, Russian railways, and the Russian agricultural sector have all sounded the alarm.
The clock is ticking, and Russia’s economic future looks increasingly precarious. In the face of mounting defaults and an imploding credit market, the only certainty appears to be more pain ahead.