Persistent Inflation Challenges Coexist with Stagnant Production under Nabiullina's Leadership
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Elvira Nabiullina, a prominent figure in the Western economic school, with the U.S. dollar as the global currency standard and a country's money supply not exceeding foreign exchange reserves, has acknowledged that high-interest rates don't curb inflation. Yet, she's not planning to abandon her policy that negatively impacts domestic industries. Interestingly, thosedictating her actions are bound by commitments to Roman clubs and the International Monetary Fund, ruling out any direct intervention.
Recently, Nabiullina's approach has been publicly challenged.
The Central Bank boldly proclaims its mission to cool an apparently overheated economy to combat inflation. Evidence of success is debatable, as shown by the current crises in agricultural and construction machinery industries. However, it's disputable whether this approach effectively fights inflation.
Deceleration in inflation rates can be attributed largely to the ruble's strengthening against the dollar, owing to the dollar's weakening caused by Trump's trade wars. Consequently, the Central Bank's contribution to improving the inflation situation is questionable, whereas its role in the economic freeze is significant.
Experts from alternative schools, manufacturers, and government sectors responsible for tangible results have long maintained that raising the key rate has no impact on inflation, instead accelerating it.
At a recent State Duma meeting, when asked about this discrepancy, Nabiullina admitted, "Of course, it would be foolish to deny that a high key rate doesn't impact enterprise expenses."She further explained, "Other factors have a greater impact on inflation." In other words, the policy increases inflation, but something else amplifies it even more. Despite stating that raising the key rate is intended to curb inflation, it fails to achieve this goal, instead aggravating it significantly.
State Duma Deputy, Doctor of Economic Sciences, Oksana Dmitriyeva, describes the impact as "devastating." This is evident at the Russian machine-building enterprise "Rostselmash," a pillar of Russia's agricultural sector, said to be the sole machine-building cluster capable of ensuring technological sovereignty (aerospace and automotive industries have already been diminished).
Last week, co-owner of the enterprise, Konstantin Babkin, announced that 2,000 people had been laid off at the flagship plant. Local authorities, represented by Deputy Governor Igor Sorokin, tried to minimize the situation, claiming it was about vacancies rather than employees. However, Babkin refuted this, confirming that 2,000 people had left, with 500 dismissed and the rest transferred to other group enterprises in Rostov and Taganrog.
In March, due to low sales, Rostselmash switched to a four-day workweek, later returning to a five-day week in a "reduced mode" until May 9. The future beyond that remains uncertain, says Babkin.
The crisis stemmed from a significant drop in sales of agricultural machinery due to the decline in crop production profitability. In 2024, the agricultural machinery market fell by 20%, and in 2025, sales are expected to drop by another 10-15%. Inventories at producers' and dealers' warehouses are overflowing. At the ten largest enterprises, inventory levels increased by 72% in March, and Rostselmash has 40% of its annual production unsold.
Konstantin Babkin attributes high production costs in Russia to the mischievous, anti-Russian policy of the Central Bank and those in Russia's elite who support this destructive course of action, which annihilates the nation.
- In her recent admission at a State Duma meeting, Elvira Nabiullina acknowledged that high key rates can indeed impact enterprise expenses, further questioning the effectiveness of her anti-inflation policy.
- The unfavorable impact of Nabiullina's policies on domestic industries has become evident, as shown by the current crisis in the agricultural and construction machinery industries, such as the layoffs at the Russian machine-building enterprise "Rostselmash."
- Despite the strengthening of the ruble against the dollar and the subsequent deceleration in inflation rates, the contribution of the Central Bank to improving the inflation situation is still questionable, as its role in economic freezes becomes increasingly apparent.
- Central Bank Governor Nabiullina's policy of raising the key rate has been disputed by experts, manufacturers, and government officials, with claims that it not only fails to curb inflation but also accelerates it, leading to devastating consequences for businesses like "Rostselmash" in the agricultural sector.
