Russia’s Central Bank Raises Rates to 15 Percent to Curb Inflation

Russia’s Central Bank on Friday raised its key interest rate by two percentage points to 15 percent, a bigger increase than expected as the bank said it was trying to bring down stubbornly high inflation.

The central bank, which said the annual inflation rate would range from 7 to 7.5 percent this year, predicted a long period of “tight monetary conditions” in order to bring the rate down close to its target of 4 percent.

Driving the price pressures is “steadily rising domestic demand,” the bank said in its statement, spurred by the Kremlin’s decision to inject more money into the economy as it fights a war in Ukraine.

The surge in spending “is increasingly exceeding the capabilities to expand the production of goods and the provision of services,” the bank said.

At a news conference Friday, Elvira Nabiullina, the head of the Central Bank, said that increased government spending was one of the reasons for the interest rate increase. Russia’s defense budget has more than tripled since last year’s invasion of Ukraine, and it is scheduled to reach almost a third of the government’s spending next year.

Russia was largely successful at weathering the immediate storm produced by sanctions aimed at punishing it for the invasion. The restrictionsgreatly curtailed its lucrative trade with Western countries and largely isolated it from the global financial system.