Business

Inflation and extremely high interest rates of 21 percent are causing the Russian economy to stare into the abyss. And the number of defaulters, meanwhile, is rising to 6.2 million. 

Consequently, the Russian economy awaits a decline in production, and an increase in business failures and the number of defaults. That was proclaimed this week by Russia's macroeconomic analysis agency TsMAKP, a think tank close to the Kremlin.

The central bank introduced record-high interest rates of 21 percent two weeks ago, after which the financial regulator reacted to curb Russia's growing inflation and reduce prices for its citizens. Those sky-high interest rates are causing the Russian economy to shoot itself in the foot. High interest rates are wrecking the economy in the longer term, the Russian Finance Ministry stresses. After all, with such interest rates, there are no more entrepreneurs borrowing money, and so the number of investments in the Russian economy drops precipitously. And that creates a snowball effect that can completely collapse an entire economy. Indeed, stagflation in the Russian economy is already imminent; that is stagnation or decline accompanied by high inflation. Meanwhile, a lot of Russian companies are therefore preparing for a financial crisis, which could drive many of them to bankruptcy. The skyrocketing cost of borrowing is pushing many companies into a dangerous debt spiral, with variable interest payments gobbling up a quarter of their turnover.

Already 20 percent more bankruptcies
According to the Russian agency Fedresoers, the number of bankruptcies in Russia has already risen 20 percent this year, as rising interest rates and cash shortages push companies ever closer to the financial abyss, the independent news site “Meduza” reported.

(SR for Tagtik/Source: AD.nl - Reuters - Belga - HLN - Meduza/Illustration picture: Unsplash)