Fuel crisis, cost of war: Bank of Russia fears a resumption of inflation

The Bank of Russia lowered its key rate from 14.5% to 14.25%, a smaller reduction than expected by analysts, against a backdrop of economic difficulties linked to increased war spending in Ukraine, Western sanctions and the fuel crisis caused by Ukrainian drone strikes.

During a press conference (source in Russian) On Friday, the president of the central bank, Elvira Nabioullina, who appeared for the first time in public since the beginning of June, after having explained her absence by health problems, suggested that we should not expect a relaxation of the policy monetary in the near future.

According to her, rates could remain high for longer due to “pro-inflationary risks” linked to higher than expected budgetary spending over the next three years. Nabioullina described this orientation as “more accommodating budgetary policy”.

Soaring gas prices were also a key factor in the decision to make a more modest rate cut.

“The rise in the price of gasoline may also have an impact on inflation expectations, because it is a very sensitive product, both for individuals and for businesses.â€declared Nabioullina, thus linking the air campaign of the Ukrainian armed forces to very concrete problems of the Russian economy.

The consequences of Ukrainian responses

In recent months, amid continued Russian attacks on Ukrainian cities and the Kremlin’s refusal to engage in peace talks, Ukraine has intensified drone strikes against Russian oil refineries, ports and tankers, disrupting the functioning of the fuel market. Some gas stations have introduced fuel rationing.

In May, oil production in Russia fell to its lowest level in a year, amid increasingly frequent Ukrainian drone attacks on refineries. At least 53 regions of the country have been faced with one form or another of gasoline shortages.

On the night of June 18, nearly 200 Ukrainian drones struck Moscow and the Moscow region, in what constitutes the largest attack on the Russian capital since the start of the full-scale war.

The images of the explosion in a refinery in the south-east of Moscow, which blew the lid off a tank, were widely circulated in the international media.

On Saturday, the Russian daily Kommersant reported a sharp rise in gasoline prices. In the Moscow region, fuel has increased by more than 3 rubles per liter. Until now, the prices of AI-92 and AI-95 gasoline increased on average by 0.1 to 1 ruble, notes the newspaper, which did not once mention the Ukrainian retaliatory strikes among the causes of the current crisis.