ISW: The Kremlin is likely putting pressure on the Central Bank of Russia due to war-related inflation

The Kremlin is putting pressure on the Russian Central Bank due to the high interest rate and in order to hide the inflation caused by the Russian Federation's war in Ukraine. This is stated in the analytical report of the Institute for the Study of War (ISW), reports UNN.

Details

It is noted that, according to unconfirmed data, there is tension between the head of the Russian Central Bank, Elvira Nabiullina, and the Kremlin due to the high interest rate and monetary policy of Russia during the war.

On March 23, a Russian insider source stated that the Accounts Chamber of the Federation Council (the supreme audit body of the Russian Federation – ed.) recently initiated an audit of the Central Bank of Russia in order to verify its monetary policy from 2022 to 2024 and the impact of the interest rate on inflation, budget expenditures and investments.

The source claimed that the investigation is "actually" an attack on Nabiullina. Also, according to the source, a group of lobbyists from big Russian business is seeking a reduction in the interest rate. "ISW cannot independently verify this claim of an internal source and does not observe other reports of a likely audit," the review says.

At the same time, analysts note that Russian inflation is growing due to Russia's full-scale invasion of Ukraine, and the Russian Central Bank in December 2024 decided to keep the key interest rate at 21 percent – the highest Russian interest rate since 2003 – as part of efforts to curb rising inflation rates.

The interest rate of the Central Bank of Russia until 2025 remained relatively conservative, despite significant and growing inflationary pressure. In recent months, the Kremlin has claimed that the inflation rate is approximately 9-10 percent, but these figures are likely much lower than the actual inflation rate, which is likely closer to 20-25 percent. The current interest rate in Russia should most likely be higher, and the Kremlin likely pressured the Central Bank to keep the rate at 21 percent, while the Central Bank should have raised it to curb inflation.

Analysts suggest that Russian ruler Vladimir Putin also tried to shift the blame for rising inflation to the Central Bank, in particular Nabiullina.

The audit of the Central Bank may be part of the Kremlin's ongoing efforts to apply political pressure to the bank to prevent further interest rate increases beyond the current 21 percent, to cope with the expectations and frustration of Russian business, and to promote the Kremlin's narrative of Russia's economic stability.

According to researchers, the Kremlin's constant manipulation of the Central Bank's decisions likely prevents the Russian government from pursuing a sound wartime monetary policy.

Key ISW findings for March 23:

• Representatives of the United States and Ukraine met in Riyadh, Saudi Arabia, on the evening of March 23 to discuss aspects of a temporary moratorium on long-range strikes and a possible temporary ceasefire in the Black Sea.
• According to unconfirmed data, there is tension between the head of the Russian Central Bank, Elvira Nabiullina, and the Kremlin due to the high interest rate and monetary policy of Russia during the war.
• Ukrainian troops advanced near Borova, and Russian troops near Toretsk and Pokrovsk.

Reminder

The Russian authorities spent more than 8 trillion rubles in two months. The budget deficit reached 1.3% of GDP, which is twice as much as planned for the year.

The Kremlin is preparing Russians for a long war, not for peace – ISW21.03.25, 02:15 • 24858 views