Introduction
On April 25, 2025, the Russian Central Bank decided to keep the key interest rate unchanged at 21%. This is the highest level since the early 2000s. This decision is shaped by several key factors, which will be examined in more detail below.
Background and Risks
- Inflation Trend: Inflation has risen from 5.9% in 2023 to currently 10.1% in March 2025. Causes include high military spending and a labor shortage due to mobilization.
- US Trade Tariffs: While no new US tariffs have been directly confirmed, the “toxic combination” of war financing and economic weakness dominates.
- Trump Effect: Speculation about a possible de-escalation in the Ukraine war under a future US President Trump has led to a temporary stabilization of the ruble.
Implications for Investors
- Ruble Risk: Despite a Trump-induced upswing, the ruble remains vulnerable to geopolitical shocks.
- Inflation Dynamics: Although the high key interest rate dampens demand, structural bottlenecks limit its effect.
- Savers in the DACH Region: Indirect effects may be felt through changes in commodity prices or global risk aversion.
Long-Term Challenges
The Central Bank continues to operate under “too high inflation pressure” while it navigates conflicts with the government. Business representatives criticize high credit costs, as President Putin navigates between stabilization and war financing. Without easing in the Ukraine conflict, a vicious cycle of stagflation and capital flight is looming.