Long-term inflationary pressure in Russia is likely to increase pressure on Russia's ability to maintain high defense spending, and the appreciation of the ruble is likely to lead to a reduction in federal oil and gas revenues in ruble terms, which will increase pressure on the federal deficit. This is stated in a new report by the British Ministry of Defense based on intelligence data, reports UNN.
Details
As the report states, despite the strengthening of the ruble, inflation continues to rise.
"In February 2025, inflation rose to 10.1% from 8.5% in October 2024, when the discount rate was introduced at 21%. Labor shortages, as well as high government spending, almost certainly mean that inflation will remain above the CBR's target of 4% by 2025. Long-term inflationary pressure is likely to increase pressure on Russia's ability to maintain high defense spending," the intelligence said.
It is noted that on March 21, 2025, the Central Bank of Russia decided to leave the key interest rate at 21%. Interest rates are at their highest level in the last 20 years, compared to the pre-war level of 8.5% in January 2022.
"As long as interest rates remain high, the number of corporate bankruptcies in Russia is likely to increase. In November 2024, the ruble depreciated to its lowest level since the beginning of Russia's invasion of Ukraine in 2022 (114 per US dollar). Since then, the ruble has strengthened to a high of 81 per US dollar in March 2025. The appreciation of the ruble is likely to lead to a reduction in federal oil and gas revenues in ruble terms, which will increase pressure on the federal deficit," the report said.
Let us remind you
The Institute for the Study of War (ISW) reported that the Kremlin is putting pressure on the Central Bank of Russia over high interest rates and monetary policy during the war in Ukraine. This is done to hide the inflation caused by the war.