MOSCOW (AP) — Russia's central bank hiked interest rates to their highest since the Kremlin sent troops into Ukraine more than 2 1/2 years ago, a step aimed at combatting the inflation fuelled by massive government outlays for the military — and by robust spending from Russian consumers in shops.
The bank raised its key rate to 19%, just below the level from late February 2022. Then the policy rate reached an unprecedented 20% in a desperate bid by the bank to shore up the ruble and ward off a financial collapse amid sanctions imposed by Western governments.
Today's situation is different: inflation is a sign of an economy overheating from government outlays and consumer demand that are outpacing the economy's capacity to produce goods and services.
Muscovites shopping Thursday on Bolshaya Dorogomilovskaya Street in western Moscow were well aware of the pace of price increases.
“I wish wages would grow as much as prices in stores," said Natalya, who like others declined to give a last name. "Everything is expensive. Eggs, bread, flour, sugar, salt, everything is expensive.”
Andrei said that “half of the salary goes on food alone. And if you take into account that 70 percent of ordinary people have a mortgage and large consumer loans in the form of car loans and so on, so the people, one could say, are starving.”
“What to do?" said Irina. "I do not know what to do, it is not my business to decide what to do. They need to stop the prices increase and, perhaps, stop some political actions that entail inflation.”
Factories are running at full speed to produce goods including clothing and vehicles for the military. As a result, many workers are seeing rising pay and consumer demand has been robust, adding more fuel to the inflation fire.
Despite sanctions and shoppers disgruntled over their grocery bills, Russia's economy remains in solid shape in many ways. The economy grew 4.4% in the second quarter. The ruble has been stable recently, after losing some 40% of its value against the dollar and the euro since 2022. Government finances, boosted by oil exports, are in good shape despite increased spending, with modest deficits easily covered by borrowing from Russian banks.
Over the longer term, inflation, loss of foreign markets and foreign investments because of sanctions can mean lower growth and income.
And there's a risk that high borrowing costs will hurt Russian companies and growth in the coming months.
Central bank head Elvira Nabiullina said however that more rate hikes could be forthcoming to return inflation from the current 9.1% to the bank's target of 4% in 2025.
“We feel this is achievable next year and we are pursuing the policy to make that happen,” Nabiullina said at a news conference following the rate decision. “We are ready to maintain tight monetary conditions for as long as needed, we are also ready to raise the key rate further.”
She cited the corrosive effects of too-high inflation, including the erosion of people's savings, high borrowing rates on longer-term loans and mortgages, and the risk of inflationary expectations becoming entrenched in wages and prices.
Higher interest rates make it more expensive to borrow and spend on goods, in theory relieving pressure on prices. Higher interest on savings can also convince people to set their disposable income aside rather than splurge. So far the central bank has been fighting a losing battle, and economists say that at some point tight credit may slow growth.
Rising wages and a strong jobs market have helped shoppers compensate for inflation and as a result “consumer activity remains high,” the central bank said.
“The reason they have raised the rate is because they want to cool what is a very fast growing consumer market," said Chris Weafer, CEO at Macro-Advisory Ltd. consultancy. "And their fear is that unless they can slow down the consumer market, then that will lead to a bubble which will then burst and leave the economy in a much worse situation."
Government revenues are supported by economic growth and by continuing exports of oil and gas with less than airtight sanctions and a $60 price cap imposed by Western governments on Russian oil. The cap is enforced by barring Western insurers and shippers from handling oil priced over the cap. But Russia has been able to evade the price cap by lining up its own fleet of tankers without Western insurance and earned some $17 billion in oil revenues in July.
FILE - People walk past a currency exchange office with an army recruiting billboard calling for a contract for service in the Russian armed forces in Moscow, Russia,on Aug. 14, 2023. (AP Photo, File)
FILE - People buy fruits at a hypermarket in Moscow, Russia, on Nov. 3, 2023. (AP Photo, File)
CARACOLLO, Bolivia (AP) — Thousands of anti-government demonstrators marching in support of Bolivia’s former President Evo Morales clashed on Tuesday with counterprotesters blocking their way, a stark sign of an escalating power struggle in the volatile Andean nation.
In his most brazen show of force yet against current President Luis Arce, Morales sent word to his followers to mobilize what he called a “March to Save Bolivia,” a 190-kilometer (118 mile)-trek from the small village of Caracollo to the capital, La Paz, denouncing the government of his protege-turned-bitter rival.
Morales, a former coca grower, has retained significant support among poor and Indigenous Bolivians despite his resignation in 2019 amid mass protests over his disrupted re-election.
The march in solidarity with him began peacefully Tuesday morning, but turned violent hours later when hundreds of counterprotesters, armed with tear gas bombs, stones and firecrackers, spread across the highway waiting to confront the nearly 10,000 marchers. Some of them set a giant effigy of Morales on fire.
The Morales supporters, raising multi-colored Indigenous flags and chanting against Bolivia's economic crisis, surged toward them, using slingshots to pelt their adversaries with rocks as police in pickup trucks and on motorbikes looked on. Morales' followers soon forced the counterprotesters to retreat, their shouts — “Evo, Bolivia wants you back!” — drowning out the pro-Arce activists who chanted, “Evo, you traitor, your time has passed.”
A top official in Arce's government, Eduardo Del Castillo, told reporters that 13 people were injured in the scuffles, including three police officers. Associated Press reporters saw some pro-Morales marchers chasing the counterdemonstrators into the rolling Andean highlands on either side of the highway, beating them with sticks, pushing them to the ground and kicking them.
Arce and his ministers accused Morales of trying to orchestrate a coup. Using exaggerated, apocalyptic rhetoric, Del Castillo denounced Morales’ protest as a “death march” and said that the former president seeks “to destroy democracy in Bolivia and end the lives of Bolivians.” He denied that police used force against peaceful protesters, insisting that officers were attacked first.
Morales, for his part, claimed that the government sent plainclothes police officers to stir up trouble and vandalize protesters' vehicles, saying that Arce's government “has lost respect for human rights and laws in the country.”
The mood was largely defiant late Tuesday at a protest encampment in Panduro, in the mining state of Oruro, where the road weary marchers spent the night.
“The government is the one that sent police officers to try to stop us, but we were united and defeated them,” said Yamile Cruz, leader of Frutcas, a group of Indigenous farmers on the edge of the world’s largest salt flat. “This march will not retreat despite the government's intentions.”
Tuesday's mayhem deepened the rift at the top of Bolivia’s governing party, threatening to take the political feud between Morales and Arce into a dramatic new phase. Morales, Bolivia's first Indigenous President who oversaw the country's commodities boom from 2006 to 2019, seeks to run against Arce, his former economy minister, in next year's presidential election.
Protesters at the march Tuesday demanded that Morales be allowed on the 2025 electoral ballot despite a ruling by Bolivia’s constitutional court last year that Arce insists disqualifies him. Morales has dismissed the court resolution as politically motivated.
“They not only want to disqualify me, they want to restrict political rights,” Morales told reporters at the march. “Above all, we want the president and his government to heed our demands.”
Cracks in the governing Movement Toward Socialism, or MAS, first opened in 2019, when Morales ran for an unconstitutional third term. He won a contested vote plagued by allegations of fraud, setting off mass protests that caused 36 deaths and prompted Morales to resign and flee the country. He returned and launched his political comeback after Arce, his choice candidate at the time, won the 2020 election.
The political rivalry has divided Congress and exacerbated an economic crisis stemming from the depletion of Bolivia’s foreign-exchange reserves. Protesters on Tuesday decried Arce's failure to halt the spiral and recalled Morales' tenure as one of economic growth and social uplift.
“We are suffering from hunger," said Felix Torres, a peasant protester from the highlands. “This is not how you govern.”
Associated Press writer Isabel DeBre in Buenos Aires, Argentina, contributed to this report.
Demonstrators carrying wiphala flags march to the capital from Caracollo, Oruro, Bolivia, led by former President Evo Morales as part of a political dispute with current President Luis Arce and to protest his handling of the economy, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Demonstrators give an offering to Mother Earth before marching to the capital, led by former President Evo Morales, as part of a political dispute with current President Luis Arce and to protest his handling of the economy in Caracollo, Oruro, Bolivia, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Supporters of former President Evo Morales, top, who are marching to the capital to protest the government of current President Luis Arce, are confronted by Arce supporters, below, in Vila Vila, Bolivia, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
An effigy of former President Evo Morales starts to burn on a road between Caracollo and La Paz, to block Morales supporters who are marching to the capital against the government of President Luis Arce in an escalation of a political dispute between the two politicians, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
An effigy of former President Evo Morales is engulfed in flames on the road between Caracollo and La Paz, the route Morales' supporters are using to march to the capital against the government of President Luis Arce, in an escalation of a political dispute between the two politicians, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Supporters of former President Evo Morales, who are marching to the capital to protest the government of current President Luis Arce, walk toward Arce supporters who met them along the route in Vila Vila, Bolivia, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Supporters of former President Evo Morales kick a government supporter whose group confronted them in Vila Vila, Bolivia, during their march to the capital, Tuesday, Sept. 17, 2024. Morales and his supporters are marching to the capital to protest the government of President Luis Arce in an escalation of a political dispute between the two politicians. (AP Photo/Juan Karita)
Supporters of former President Evo Morales, who are marching to the capital to protest the government of current President Luis Arce, advance towards Arce supporters who met them along their route in Vila Vila, Bolivia, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Supporters of former President Evo Morales, one holding a sling-shot, pursue a government supporter, top right, in Vila Vila, Bolivia, as they march to the capital, Tuesday, Sept. 17, 2024. Morales and his supporters are marching to the capital to protest the government of President Luis Arce in an escalation of a political dispute between the two politicians. (AP Photo/Juan Karita)
Supporters of former President Evo Morales march to the capital to protest against the government of current President Luis Arce in an escalation of a political dispute between the two politicians, in Vila Vila, Bolivia Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Former President Evo Morales, center, and his supporters march to the capital to protest against the government of current President Luis Arce, in an escalation of a political dispute between the two politicians, in Vila Vila, Bolivia, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Supporters of former President Evo Morales, who are marching to the capital to protest the government of current President Luis Arce, run towards Arce supporters who met them along the route in Vila Vila, Bolivia, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
A government supporter runs through tear gas during clashes with supporters of former President Evo Morales who are marching to the capital to protest the government of current President Luis Arce in Vila Vila, Bolivia, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
Supporters of former President Evo Morales, kick a government supporter in Vila Vila, Bolivia, as Morales supporters march to the capital, Tuesday, Sept. 17, 2024. Morales and his supporters are marching to the capital to protest the government of President Luis Arce in an escalation of a political dispute between the two politicians. (AP Photo/Juan Karita)
An effigy of former President Evo Morales burns on a road in Vila Vila, Bolivia, to block Morales supporters who are marching to the capital to protest the government of current President Luis Arce in an escalation of a political dispute between the two politicians, Tuesday, Sept. 17, 2024. (AP Photo/Juan Karita)
