Russia’s Economic Slowdown and Inflation Struggle Amid Policy Shifts

Russia’s central bank cut interest rates despite persistent inflation, highlighting economic tensions as growth falters. The key rate reduction—partially reversing emergency measures that had pushed borrowing costs to 21%—came after business leaders warned of stifled activity. Inflation remains elevated at 8.2%, with expectations stubbornly high, threatening sustained price stability.

Second-quarter GDP growth slowed sharply to 1.1% annually, down from 4.5% at the end of 2023, while quarterly output contracted 0.6%. The budget deficit ballooned to 4.9 trillion rubles through July, fueled by defense spending and recruitment bonuses that buoy wages but exacerbate price pressures. Oil and gas revenues, a lifeline for the war-strained economy, fell 19% year-over-year.