Risk of financial instability in Russia rising slowly

Significance

The resumption of inflation is a consequence of soaring domestic demand outstripping supply, especially for war-related goods and services. The CBR is tightening monetary policy to cool domestic demand and ensure a soft landing for the economy, which is growing rapidly but is vulnerable to overheating.

Impacts

• Disruption to foreign exchange markets will dampen imports and support the ruble exchange rate.
• Lower credit availability is unlikely to reduce corporate investment as it is mostly financed from companies’ own funds.
• Higher mortgage interest rates will contain price growth in the real estate market.