Russia’s central bank raised its key interest rate to 18 percent on Friday, the highest level in more than two years, in a sign of mounting concern in Moscow that the country’s wartime economy risked producing runaway inflation.
Elvira Nabiullina, the Russian central bank’s chairwoman, said the bank raised the rate by two full percentage points because “overheating in the economy has remained considerable.”
The increase, the first since December, lifts rates to more than double where they were a year ago and close to the high of 20 percent, which the central bank pushed through as an emergency measure just after Russia launched its invasion of Ukraine in early 2022.
Annual inflation in Russia stood at 9 percent this month, far higher than the 4 percent the country’s financial authorities had been targeting. Ms. Nabiullina said Friday that the scale of “overheating” in the first half of the year was the greatest the Russian economy had seen in 16 years. The central bank is now forecasting inflation of as much as 7 percent for the full year.
Dmitri S. Peskov, the Kremlin spokesman, said in a call with journalists on Friday that President Vladimir V. Putin remained satisfied with the work of the central bank. He said that Russia’s overall economic development indicators were “very, very positive,” but that nonetheless problems can arise.
“No economy in the world is free from the current problems,” Mr. Peskov said. He said “certain regulatory measures” are taken to address those problems, and “the same is being done in our country.”
Russia’s economy has adapted to international sanctions and the demands of the war far better than Western officials had predicted. But Ms. Nabiullina’s move on Friday underscored the risks, as the government pumps enormous sums of money into the Russian economy to finance the military operation. Facing a tight labor market, made worse by the number of men drafted to fight at the front, Russian firms have been forced to raise wages, driving up inflation.
“Labor force and production-capacity reserves have been almost exhausted,” Ms. Nabiullina said.
A further cause for stubborn inflation, she added, were “risks related to external conditions,” saying that Russian companies were passing on the burden of sanctions to consumers in the form of price increases.
Russian military spending accounted for almost a third of all expenditures in the country’s 2024 budget. The level has more than tripled since the invasion of Ukraine in 2022. The Russian government has yet to propose a budget for next year, which would be an indicator of the economy’s future trajectory. Some economists are not ruling out a further hike in the key interest rate in September.
Paul Sonne contributed from Berlin and Ivan Nechepurenko from Tbilisi, Georgia.