A key ally of Russian President Vladimir Putin has warned him the majority of companies in the country will go bankrupt as interest rates rise.
Sergey Chemezov, CEO of the state-owned Rostec, the biggest producer of Russian arms, made the comments earlier this week. He hit out at the Russian bank after interest rates were lifted by two percentage points to 21%, a record high.
Chemezov said: “There is no 20 percent profitability anywhere. Maybe in the drug trade, but even the sale of weapons does not bring such a profit.
“It is simply not profitable for enterprises to use borrowed funds, as I have already said many times. It is just that if we continue to work like this, then practically the majority of enterprises will go bankrupt.”
Chemezov is not the only high-profile Russian business figure to raise concerns.
Russian billionaire Alexey Mordashov, the largest shareholder of steelmaker Severstal, warned this month that the interest rates rises have gone “too far.”
He said: “The need to raise rates to limit inflation is clear, but we are starting to go too far,” Mordashov said, per Reuters. “We are coming to a situation where the medicine may become more dangerous than the disease.”
A statement issued by the Russian Central Bank said: “Inflation expectations continue to increase.
“Growth in domestic demand is significantly outstripping the capabilities to expand the supply of goods and services.”
“Further tightening of monetary policy is required to ensure the return of inflation to the target and reduce inflation expectations.”
Russia‘s invasion of Ukraine has put the country’s economy on a war footing, burning through a lot of its cash reserves as Western sanctions restrict what levers Moscow can pull.
Director of the European Department of the International Monetary Fund (IMF) Alfred Kammer recently said that Russia‘s economy is “overheating.”
He said: “What we are seeing right now in the Russian economy and debt: It is pushing against capacity constraints. We have a positive output gap, or you could put it differently – the Russian economy is overheating.”