The economic world is always filled with various unexpected changes. On October 25th, the Central Bank of Russia made a shocking decision for the market—raising interest rates by 200 basis points, significantly increasing the key rate from 19% to 21%, which is the highest level since February 2003!

Why did Russia suddenly make such a decision? In fact, the main reason is the immense domestic inflationary pressure. It's like a balloon, with more and more air inside; if not controlled, it will burst. Data from September shows that the seasonally adjusted annualized growth rate of prices increased from 7.5% in August to 9.8%, and the core inflation rate rose from 7.7% in August to 9.1%. Inflationary pressures, including potential inflation, are near the highest levels since the beginning of the year. Moreover, inflation expectations among residents and businesses have also reached their highest levels since the beginning of the year, with everyone believing that prices will continue to rise.

Actually, the Central Bank of Russia has been working hard to curb inflation. In September of this year, it had already raised interest rates by a substantial 100 basis points, increasing the benchmark rate to 19%. However, the fervor of domestic social financing has not waned, and inflation is like a stubborn enemy that cannot be driven away.

Looking at economic growth, the Russian economy still has a certain resilience. Although the growth rate is lower than that of the first half of 2024, it is expected that the Gross Domestic Product will grow by 3.5% - 4.0% in 2024, and it is still growing. However, economic growth also faces some issues, such as increasing supply-side constraints, a tight labor market, unemployment at historically low levels, a shortage of workers in many industries, and wage growth exceeding the growth rate of labor productivity.

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Netizens have different opinions on this interest rate hike. Some netizens say, "This is a necessary measure for the Central Bank of Russia to deal with inflation. Although it will have some impact on economic growth, controlling inflation in the long run is key." Other netizens worry, "Will raising interest rates increase the borrowing costs for businesses, thereby affecting their development?"

For Russian businesses, raising interest rates is indeed a challenge. With increased borrowing costs, businesses may be more cautious when expanding production or investing in new projects. However, from another perspective, if inflation is not controlled and prices soar, businesses' production costs will also increase, and the market will become unstable.

In the international environment, Russia is also facing Western sanctions, with trade continuing to shrink, especially in imports. This also brings certain pressures to the Russian economy.

This move by the Central Bank of Russia reflects its determination to combat inflationary pressures. So, what are everyone's thoughts on the Central Bank of Russia's decision to raise interest rates?