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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
But central bank governor Elvira Nabiullina denied\u00a0Russia is in a recession, pointing to other data points displaying more strength, like employment, real income, consumer demand and industrial production.<\/p>\n
\u201cWe do indeed have a cooling of the economy. This is natural when coming out of overheating, when production capacity must catch up with demand,\u201d she said at a news conference, according to Reuters<\/a>.<\/p>\n 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\u2019s led to labor shortages, stoking inflation.<\/p>\n 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\u00a0potential debt crisis<\/a>\u00a0as high interest rates weigh on borrowers\u2019 ability to service loans.<\/p>\n In June, Economy Minister Maxim Reshetnikov warned that\u00a0Russia was\u00a0\u201con the brink\u201d\u00a0of a recession<\/a>.\u00a0And last month, Oxford Economics also said Russia is teetering on the edge of recession<\/a>.<\/p>\n Last week, Sberbank<\/a> CEO German Gref, one of Russia\u2019s top banking chiefs, said the economy was in \u201ctechnical stagnation,\u201d<\/a> following his warnings in July and August that growth was close to zero.<\/p>\n On top of that, Russia is having a disastrous harvest despite being an agricultural powerhouse, putting further pressure on the economy and the Kremlin\u2019s finances.<\/p>\n Oil and gas revenue, which is Russia\u2019s main source of funds,\u00a0has 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.<\/p>\n