Russia cuts interest rate to 17% as wartime economy slows while deficit grows

Russia’s central bank is cutting its benchmark interest rate by one percentage point to 17%, a step that could support growth and business activity as the economy slows and the government budget deficit increases

Russia’s central bank cut its benchmark interest rate Friday by one percentage point to 17%, a step that could support the economy as growth slows and spending on the war against Ukraine increases the budget deficit.

The bank had raised its key rate as high as 21% to combat inflation, but has begun to retreat amid complaints from business leaders and legislators about their impact on economic activity.

The bank’s inflation warnings in its policy statements underlined the stresses in the Kremlin’s wartime economy.

The bank noted that inflation eased somewhat in July and August but remains elevated at 8.2%. Still, it warned that “inflation expectations have not changed considerably in recent months.”

“In general, they remain elevated,” the bank said. “This may impede a sustainable slowdown in inflation.”

The contrast between a rate cut and continued inflation warnings reflects serious frictions in the Russian economy.

The central bank is focused on containing prices. Yet the finance ministry is pumping money into the economy