The Bank of Russia lowered benchmark rates again on Friday and denied the economy is in a recession, even after its own data showed GDP has been shrinking this year.
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.
While 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.
A 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.
But 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.
“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.
The 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.
As 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.
In 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.
Last 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.
On 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.
Oil 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.
On 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%.
Doing 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.
Instead, Russia raised tensions with NATO by sending drones into Poland this past week, prompting fighter jets from the alliance to shoot them down.
“China has a strong control, and even grip, over Russia,” Trump posted, and powerful tariffs “will break that grip.”