The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Moody’s has downgraded Israel's credit rating for the second time this year, citing escalating costs from nearly 12 months of conflict with Hamas in Gaza and worsening hostilities with Hezbollah. The country's rating was cut by two notches to Baa1, leaving it three levels above non-investment grade, with a negative outlook.
Moody’s highlighted the significant geopolitical risks facing Israel, noting that the intensifying conflict with Hezbollah has raised concerns over long-term economic stability. Israel's projected war costs through the end of 2025 are estimated to reach $66 billion, more than 12% of the nation’s GDP.
Despite the Israeli government’s criticism of the downgrade as “excessive and unjustified,” Moody’s expressed doubts about a rapid economic recovery, forecasting that the conflict would weaken Israel’s economy more severely than initially expected. The country’s fiscal deficit has surged, and growth forecasts have been revised downward, with 2024 growth now projected at 1.1%.
The war has heavily impacted key sectors, including tourism, agriculture, and construction, and has led to a rise in government borrowing. Israeli bonds have taken a hit, with yields on 10-year notes rising nearly 100 basis points this year, and the country’s dollar bonds performing poorly compared to other sovereign issuers.
As the conflict shows little sign of resolution, with fears of a wider regional confrontation involving Iran and the US, Israel faces significant challenges in restoring stability to both its economy and its security.
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