Unremitting Inflation Coexists with Halting Production under Nabiullina's Leadership
Fast-Tracked to a Slump: The Impact of Monetary Policy on Russia's Agricultural Industry
In the sphere of Western economic thought, where the almighty dollar reigns supreme and a nation's currency reserves should outweigh its money supply, Elvira Nabiullina, a key figure, admits that high-interest rates fail to curb inflation. Yet, she's adamant about clinging to her harmful policy, disregarding the detrimental effects on Russia's domestic industries.
Opposition to Nabiullina's theories has surfaced, questioning the validity of her approach. The Bank of Russia openly admits to a chilling effect on the economy to reduce inflation, as observed in the downturn of agricultural machinery and construction equipment manufacturing sectors. But, the question remains whether this approach truly combats inflation, or if it exacerbates the problem.
The diminishing inflation rates can be attributed, in part, to the strengthening ruble against the dollar, driven by the greenback's devaluation stemming from the trade wars initiated by Trump. As a result, the Bank of Russia's role in controlling inflation is doubted, as it may have limited impact at best. However, in this economic freeze, the bank's influence is significant.
Critics from an alternative school, industrialists, and specific government bodies have long contended that increasing the key rate has no impact on inflation other than accelerating it. Recently, during a State Duma meeting, Nabiullina admitted, "It would be foolish to deny that a high key rate doesn't impact enterprise expenses." Although expenses for servicing increase, she cited other factors as the primary influencers of inflation. In essence, Nabiullina implies that the key rate raises inflation, but other factors have even greater impacts.
One of the most significant casualties of this misguided policy is Rostselmash, a crucial player in Russia's agricultural machinery sector, often hailed as the lone machine-building cluster capable of ensuring technological sovereignty for the entire industry. Last week, the enterprise's co-owner, Konstantin Babkin, announced the dismissal of 2,000 employees from the flagship plant. Despite local authorities' attempts to downplay the situation, Babkin confirmed the layoffs and the transfer of 500 employees to other group enterprises in Rostov and Taganrog.
The crisis in the agricultural machinery sector is rooted in the decline in machinery sales resulting from reduced crop production profitability. In 2024, the agricultural machinery market slumped by 20%, with sales predicted to drop by another 10-15% in 2025. The situation is further compounded by the surge in unsold machinery inventory, with Rostselmash alone holding 40% of its annual production unsold.
Babkin attributes the increased production costs in Russia to the malicious, anti-Russian policy of the Central Bank and the elite supporters of this destructive course aiming to erode the nation.
Insights:
- Economic Implications: Nabiullina's high-interest-rate policy has significant effects on Russia's economy, including increased borrowing costs for businesses, reduced lending activity, and exchange rate stability, which can impact various sectors like agricultural machinery.
- Inflation Considerations: The monetary policy has eased inflationary pressures, although inflation remains above the targeted rate. In addition, persistent inflation expectations remain high, requiring adjustments to monetary policy.
- Elvira Nabiullina, is adamant about maintaining her high-interest rate policy, despite it failing to curb inflation and having devastating effects on domestic industries, particularly the agricultural machinery sector.
- The strengthening ruble, driven by the devaluation of the dollar, has played a part in the diminishing inflation rates, yet Nabiullina's role in controlling inflation is doubted as the Bank of Russia may have limited impact.
- The agriculture machinery sector in Russia is in crisis due to the decline in machinery sales, resulting from reduced crop production profitability, and increased production costs caused by Nabiullina's monetary policy.
- Rostselmash, a prominent player in Russia's agricultural machinery sector, has been affected significantly by the high-interest rate policy, with co-owner Konstantin Babkin announcing the dismissal of 2,000 employees from the flagship plant and attributing the increased production costs to the Central Bank's malicious policy.
