The Central Bank of Russia has reduced its key interest rate by 1 percentage point, bringing it down to 17%. This marks the third rate cut since June, following a period of extremely high borrowing costs that helped curb inflation but are now contributing to economic strain under ongoing wartime conditions.
Although the Russian economy showed resilience in the early stages of Western sanctions after President Vladimir Putin initiated military action in Ukraine in 2022, recent data from the central bank indicates deeper economic deterioration than previously acknowledged. A chart included in a recent report revealed that GDP declined sequentially in both the first and second quarters of the year, meeting the standard definition of a technical recession.
Despite this, central bank head Elvira Nabiullina maintained that Russia is not officially in a recession, citing positive indicators such as stable employment levels, steady real incomes, sustained consumer demand, and consistent industrial output.
“We are indeed seeing a slowdown,” she stated during a press briefing covered by Reuters. “This is expected after a phase of overheating, especially when production capacity struggles to keep pace with demand.”
The Kremlin has significantly increased military spending, pushing factories to operate at maximum capacity to produce weapons and offering substantial financial incentives to attract new military recruits. These efforts have led to labor shortages, which in turn have fueled inflationary pressures.
In response, the central bank raised rates as high as 21% in the previous year. Since then, signs of economic fragility have multiplied. Russian financial institutions have issued warnings about a looming debt crisis, as elevated interest rates make it harder for borrowers to repay loans.
In June, Economy Minister Maxim Reshetnikov cautioned that the country was “on the brink” of a recession. More recently, Oxford Economics echoed this assessment, suggesting Russia is hovering near economic contraction.
German Gref, CEO of Sberbank and one of Russia’s most prominent banking figures, described the current state as “technical stagnation,” following earlier statements in July and August that economic growth was nearly flat.
Compounding these challenges, Russia is experiencing a poor agricultural harvest despite its status as a major global food producer, adding further stress to both the economy and government finances.
Revenue from oil and gas—Russia’s primary income source—has sharply declined this year due to lower global crude prices and stricter Western sanctions. To cover growing budget shortfalls, Moscow has been drawing down its reserve funds, which may be depleted by the end of the year.
Over the weekend, former U.S. President Donald Trump urged NATO members to cease purchasing Russian oil and proposed imposing secondary tariffs of up to 100% on China, a major buyer of Russian crude. He argued on social media that such measures could help end the conflict in Ukraine. This statement followed a recent meeting between Trump and Putin in Alaska that failed to produce progress on ceasefire negotiations.
Meanwhile, tensions between Russia and NATO escalated after Russian drones entered Polish airspace, prompting allied fighter jets to intercept and destroy them.
Trump commented that China holds significant influence over Russia and suggested that aggressive tariffs could weaken that relationship.
— news from Fortune
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Russia’s central bank reveals GDP is shrinking, a sign Putin’s war economy is in recession
The latest cut brought rates down by 1 percentage point to 17% and marked the third reduction since June as sky-high borrowing costs have helped cool inflation but are also straining the wartime economy. n nWhile Russia had been remain resilient amid Western sanctions imposed after President Vladimir Putin launched his invasion of Ukraine in 2022, data from the central bank last week revealed more damage than previously thought. n nA chart in a report showed GDP shrank on a sequential basis in the first and second quarters, meeting the definition of a so-called technical recession. n nBut central bank governor Elvira Nabiullina denied Russia is in a recession, pointing to other data points displaying more strength, like employment, real income, consumer demand and industrial production. n n“We do indeed have a cooling of the economy. This is natural when coming out of overheating, when production capacity must catch up with demand,” she said at a news conference, according to Reuters. n nThe Kremlin has been pouring money into its war on Ukraine, with factories running hot to keep churning out more weapons while massive financial incentives are being offered to bring fresh recruits into the military. That’s led to labor shortages, stoking inflation. n nAs a result, the central bank hiked rates has high as 21% last year. Since then, more cracks have been appearing in the economy. Russian banks have raised red flags on a potential debt crisis as high interest rates weigh on borrowers’ ability to service loans. n nIn June, Economy Minister Maxim Reshetnikov warned that Russia was “on the brink” of a recession. And last month, Oxford Economics also said Russia is teetering on the edge of recession. n nLast week, Sberbank CEO German Gref, one of Russia’s top banking chiefs, said the economy was in “technical stagnation,” following his warnings in July and August that growth was close to zero. n nOn top of that, Russia is having a disastrous harvest despite being an agricultural powerhouse, putting further pressure on the economy and the Kremlin’s finances. n nOil and gas revenue, which is Russia’s main source of funds, has also been collapsing this year on low crude prices and tighter Western sanctions. To fill budget deficits, Moscow has been draining its reserve funds, which could run out later this year. n nOn Saturday, President Donald Trump called on NATO countries to stop buying Russian oil and to hit China, a top customer of Russia’s crude, with secondary tariffs as high as 100%. n nDoing so would help bring an end to the Ukraine war, he argued on social media. That’s after his meeting with Putin in Alaska last month yielded no progress on ceasefire talks. n nInstead, Russia raised tensions with NATO by sending drones into Poland this past week, prompting fighter jets from the alliance to shoot them down. n n“China has a strong control, and even grip, over Russia,” Trump posted, and powerful tariffs “will break that grip.”