Russia cuts interest rate by 1 per cent to 17 per cent

Russia’s central bank has reduced the bank interest by one percentage point to 17 per cent. The gesture was meant to stimulate the war-time economy. There was the apprehension that it was slowing down due to the restrictions of foreign investors through Western sanctions since the beginning of the war in Ukraine in February 2022. The inflation has been running high, and it remained at 8.2 per cent in July-August though it has eased from the much higher levels earlier.

The quarterly growth rates indicate slowing down, from 1.4 per cent in the first quarter to 1.1 per cent in the second in the present financial year. There was a conspicuous increase in the deficit, with the figure ballooning to 4.9 trillion rubles from 1.9 trillion rubles last year. The central bank is indeed in a dilemma as to keep the interests high in order to keep the deficit and inflation in manageable terms.

Experts however indicate that Russian economy has weathered the effects of the war in Ukraine and the accompanying Western sanctions. The United States under President Joe Biden and the European Union (EU) had hoped the economic sanctions that the two had imposed would crumble the economy.

But it did not turn out that way, and Russia is able to wage a war based on its own resources. It is true that the war has taken its economic toll though perhaps much less in terms of human loss and the psychological trauma. Though open to the idea of peace talks, Russian President Vladimir Putin is willing to wage a war with Ukraine. Critics are sure to argue that countries like China and India buying oil from Russia is indeed helping Moscow to able to continue with the war.

Comparatively, Ukraine suffered much from the Russian onslaught in physical and metaphorical terms. The death toll, the loss in physical infrastructure has been immense. It has lost hugely its economic infrastructure because of the relentless Russian attacks. Ukraine will take a longer time to recover its economic growth.

It should also be noted that Ukraine had been excessively dependent on foreign aid, both on the defence and humanitarian fronts. Russia has comparatively more resources in terms of men and materials to pursue war. There are many natural factors as to the advantages that Russia enjoys over Ukraine.

Russia is much bigger in size compared to Ukraine. This gives Russia a greater strategic depth. It has larger human and material resources. This naturally leads to greater economic resilience for Russia than for Ukraine. The fact that Russia can rely on its own economic base to fight the war gives it a natural strategic advantage.

Even as Ukrainian President Volodymyr Zelensky continues to plead for a ceasefire, Putin can afford to indulge in delaying tactics. There is a certain economic urgency for Ukraine for the war to end. Kyiv has to get back to economic reconstruction as soon as it can because it has suffered huge damage in its cities to homes, schools, hospitals and industries. And rebuilding cannot happen overnight. It will take more than a couple of years for the Ukrainian cities to be back to the pre-war levels. International investors would not be drawn to Ukraine until there is certainty of peace.

The vast geographical spaces that Russia still commands makes it a formidable world power in terms of economic and military prowess. And history offers two mighty examples of Napoleon in the 19th and Hitler in the 20th centuries had learnt the bitter lesson of driving into Russia only to find themselves trapped in its unprotected open spaces during winter. Putin can safely sit back in his Kremlin quarters and monitor the troop movements on the Ukrainian front. And the economy is strong enough to aid his war efforts.