Russia’s central bank has raised its key interest rate by two percentage points to a record-high 21% in an effort to combat growing inflation.

Russia’s central bank on Friday raised its key interest rate by two percentage points to a record-high 21% in an effort to stem growing inflation as massive government spending on the military amid the fighting in Ukraine strains the economy’s capacity to produce goods and services and drives up workers’ wages.

  • RestrictedAccount@lemmy.worldEnglish
    4·
    29 days ago

    Governments need money. If the Government can’t collect enough taxes to keep pay their bills, they have to borrow. Hyperinflation sets in when the Government can’t collect taxes and nobody will loan it to them so they just print massive amounts of worthless paper.

    Raising interest rates entices people to loan the government money and increases the amount of cash paid for loans.

    Both of these consequences soak cash out of the economy which increases the value of the cash that remains which is what combating inflation really is. While providing non-printed currency the government can use to pay bills.