Russia’s inflation is out of control and interest rates should be 700bp lower (chart). 

Inflation was up again to 9.5% in December, says the Central Bank of Russia (CBR).

Interest rates are at 21%.

That is a massive 11.5% spread.

That is unheard of in the normally conservative world of central banking monetary policy.

Yesterday, for fun, I calculated what the Taylor Rule says rates should be => 16.5%

And that is with the economy running hot at 4% growth in 2024.

If it cools to potential growth rate of 1.5% (as it will this year) then Taylor Rule says rates should be 14%.

In other words, without the war CBR governor Elvia Nabiullina could rapidly cut rates by a staggering 7% — again, an unheard of amount in the central banking world.

And she has actually been making cuts and hikes like this since the war started. It's become normal.

Following the invasion, she hiked rates by a staggering 10.5% in a day. Then after waiting for two months for that to take effect, she took an axe to them again, cutting by a whopping 12.5% in only four steps.

After inflation took off in 2Q23 she began hiking again, increasing rates again by 14.5% in only eight steps.

Normally you manage interest rates using tweezers and a magnifying glass. The normal hike, if one is needed, is 25bp. That’s 0.25 percentage points…

Nabi is out there swinging a sledgehammer nearly every month, adding multiple full percentage point hikes or cuts. This is off the range stuff.

And this is the lady known as “the most conservative central banker in the world”.

And inflation is still accelerating, not slowing, as the decision to keep rates on hold in December, when everyone was expecting another 200bp hike, has backfired. Bottom line is the CBR has lost control of inflation and only ending the war (or at least stopping the spending, which is not going to happen even if the war stops as Russia needs to rearm) will return control to her.

What sort of brooch should she make to capture all this I wonder? A bomb would be appropriate, eh?