Importance Score: 75 / 100 🔴
Russia’s volatile economic landscape has heightened the likelihood of a bank run as account holders swiftly withdraw funds, as per a recent analysis. The Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF) cautioned that the threat of “depositor exodus” is on the rise. The organization further predicted that “geopolitical economic turmoil” could trigger a “panic response” among banking clients, escalating the risk of financial instability.
Increased Risk of Bank Runs
According to CMASF’s early warning system, a risk score below 0.3 indicates minimal systemic liquidity perils. However, a range between 0.3 and 0.5 signals moderate peril, while scores surpassing 0.5 suggest heightened danger. Alarming reports reveal that the risk has surged from 0.27 in February to 0.6 in April, matching levels seen in March 2022 following Russia’s comprehensive incursion into Ukraine.
At that time, citizens withdrew foreign currency totaling approximately £7.38 billion ($9.8 billion) – highlighting conditions leading to economic distress after gazing investment options.
Impact of High Interest Rates
CMASF indicates that Russia’s fiscal struggles are exacerbated by the repercussions of elevated interest rates on lending and investment. Russia’s central bank maintained its key interest rate at 21% last month, citing risks tied to U.S. trade tariffs.
The elevated interest rate regime raises borrowing costs, impeding consumer spending and business investments, thereby slowing economic growth. Moreover, the central bank has cautioned that further declines in international growth and oil prices could amplify inflation, projected between 7.0% and 8.0% – significantly above Russia’s target of 4.0%.
The Role of Oil Revenue
Petroleum constitutes nearly a third of Russia’s state income, implying that plummeting prices would gravely impact the Kremlin’s financial plans. This April, the price of Russia’s chief Urals oil blend dipped to around $53 per barrel, sharply below the average $69.7 per barrel forecast in the 2025 budget.
Economic Growth Rates
The country’s economic expansion reveals a mixed picture. In March, the gross domestic product (GDP) witnessed a year-on-year growth of 1.4%, improving from 0.7% in February. However, the year-on-year growth for April stood at 1.7%, a significant decline from the 5.4% growth rate observed in January-March 2024.
Forecasted Economic Growth
- The central bank anticipates a modest growth rate of 1-2% for the year.
- The Ministry of Economic Development projects a slightly more optimistic growth rate of 2.5%.