A close allay of Vladimir Putin has warned that Russian industries face mass bankruptcies due to spiralling interest rates as the country’s economy continues to struggle.
Russia‘s Central Bank (CBR) raised the key interest rate by two points to 21% in late October.
This is the highest rate since Putin’s full-scale invasion of Ukraine and is intended to bring inflation – currently at 9.1 percent – under control.
The hike in interest rates, however, has sent shockwaves through Russian company boardrooms, as firms face up to crippling debt burdens.
Sergey Chemezov, the head of Russia‘s defence conglomerate Rostec and a former KGB colleague of Putin, warned many companies could go bust.
“If we enter into contracts for products whose production cycle is more than a year, then, naturally, the maximum we receive is an advance payment of 30–40%,” he told the RBK publication.
“The remaining funds in order to produce these products must be borrowed.
“And at such an interest rate, all the profit that we provide is all eaten up by the interest that we are forced to pay to the bank.
“If we continue to work like this, then most of our enterprises will go bankrupt.”
Interest rates were only at 7% in April 2022, and were forecast to stay at that level for the foreseeable future.
This encouraged many firms to take out variable loans to fund expansion programmes and asset acquisitions.
Bankruptcies are reported to be 20 percent higher in 2024 than they were in 2023, with many more closures expected to come in the near future.
Russia’s biggest steel manufacturer, Magnitogorsk Iron and Steel Works, has enough reserves only for another six months and has reported a “very negative” outlook for 2025.
And there appears to be no respite in sight for the beleaguered Russian industrial companies.
The Central Bank’s deputy chairman Alexei Zabotkin has not ruled out a further hike in interest rates to get inflation back down to 4%.
“The policy of the CBR is driven by high inflation and there is a need to bring it back to our target of around 4% in 2025 or 2026,” he told state television.
“The board of directors of the CBR allows for the possibility that additional key rate hikes may be necessary.”