This week is the second straight week the inflation rate in Russia surpassed the benchmark interest rate of 17% set by the Central Bank of Russia.

Yet despite this inversion, the CBoR is contemplating reducing rates, as the weekly pace of inflation has slowed dramatically.

But weekly inflation in Russia slowed after a big rise in the past few weeks, data from statistics service Rosstat showed on Wednesday, giving the central bank reason to consider cutting rates at its board meeting on April 29.

This is in marked contrast to the outwardly hawkish stance of the Federal Reserve on inflation in the US, with Fed Chairman Jerome Powell contemplating doubling the the next interest rate rise, to combat inflation that, by official metrics, is half that of Russia's.

The Fed's benchmark interest rate is its top tool for steering the economy, and after holding rates near zero through much of the pandemic, the central bank is reversing course. The Fed raised the rate from its record low by 0.25 percentage points in March in hopes of cooling the price surge. Yet with inflation trending at 41-year highs and Russia's invasion of Ukraine driving prices sharply higher, calls for more aggressive action have intensified.

As I have argued previously, interest rate hikes cure inflation because they trigger an economic recession and demand destruction.

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a year ago · 4 likes · 6 comments · Peter Nayland Kust

The same would hold true in Russia as well — market forces do not care about national boundaries.

In either country, this intended consequence of interest rate hikes means that interest rates must be higher than the inflation rate to contain inflation. As interest rates are the “price” of money, to choke off the inflation money must be more expensive than the things bought with money.

That is no longer the case in Russia.

Is the CBoR going to follow through with rate cuts? Or will they act to tame inflation by hiking rates in the middle of Putin's Ukrainian War?

Just as with China's loosening of monetary policy, we will soon get to see the contrast of looser vs tighter monetary policy between the CBoR and the Fed.

Which one is the “right” policy? Anyone who pretends to know…doesn't.