ST PETERSBURG, Russia, June 5 – Russian financial authorities have created “a trap” for the economy with their tight monetary policy, driving it into stagnation, several sanctioned billionaires topping Russia’s Forbes list said on Friday, in their highest-level public criticism since a 2024 interest rate hike.
Economic growth is expected to slow to 0.4% this year from 4.9% in 2024 due to high rates, an overvalued rouble, and Western sanctions, and the government’s proposed measures are not expected to provide a significant boost to growth.
Most of Russia’s billionaires have supported President Vladimir Putin’s war in Ukraine since 2022 despite Western sanctions, which deprived them of access to their properties and luxury yachts in Europe and North America.
However, as the war drags on into its fifth year with no end in sight, with profits falling, taxes rising, access to Western markets still denied, and the biggest nationalization drive since the 1990s, the consensus over the war aims among businessmen appears to be cracking.
Roman Trotsenko, a transport, fertilizer and real estate billionaire, likened the central bank’s monetary policy to a “Volcker shock,” referring to the U.S. Federal Reserve’s aggressive rate hikes in 1979-82 under Chairman Paul Volcker.
“This was a big experiment, and no one has repeated it since, except us,” he told an audience of top officials, bankers, and businessmen at a panel on growth organised by the country’s main bank, Sberbank, as part of Russia’s biggest economic conference in St Petersburg.
Russia’s key interest rate is now 14.5%, down from a high of 22%, but is still deemed too high for businesses to invest, given that inflation has slowed to 5.6% from around 10%.
Trotsenko said economic history books would describe the wartime rate policy as “Zabotkin’s trap, into which Russia mistakenly fell,” referring to the central bank’s First Deputy Chairman Alexei Zabotkin, an architect of current policy.
ALREADY A MIRACLE
Zabotkin, who attended the discussion, applauded Trotsenko’s speech but later told reporters that the central bank was fully aware of Russian businesses’ woes.
Dmitry Mazepin, owner of fertiliser producer Uralchem, likened the central bank’s actions to cool down the economy to efforts by hostile Western powers.
“What does the external challenge do? Besides the fact, as the president said, that they want to inflict a strategic defeat, they simply want to slow us down. What is happening internally? What is the central bank doing when it says it wants to cool down the economy?” Mazepin said.
Russia’s richest man, according to Forbes, billionaire Alexei Mordashov, owner of steelmaker Severstal, said domestic demand for steel had fallen by 30% in the last three years, resulting in the company cutting 24% of its investment portfolio while its cash flow had turned negative.
“I am sure that almost everyone in this room is seriously reconsidering their investment programme. It is clear that with such instability and volatility, this means we will face an even greater decline in investments and an even greater fall in GDP.”
Russian billionaires usually refrain from making public comments on the war in Ukraine. Many have formally ceded control of their companies and are fighting in courtrooms for the lifting of Western sanctions.
German Gref, CEO of Sberbank, who drafted Putin’s first economic programme in the early 2000s, which led to spectacular growth rates for several years, told reporters after the panel that Russia’s meagre growth rate under the current conditions was “already a miracle”. REUTERS
