Russia raised its bank benchmark interest rate to 17% yesterday, amid claims that sanctions and lower cost of oil forced the change. That is the rate used to calculate all other interest rates. We have to wonder what the Russians are paying for a home or car loan these days.
Before sanctions even started, Russian press reports were saying they would not have any effect on the Russian economy. Putin and some of his buddies were laughing about having sanctions placed on them for the incursions into Ukraine. They have probably thought about that more since then. They may not have modified their behavior, but they have to think about whether Ukraine is really worth what they are paying for it. Putin's popularity is still high, but we shall see how long that lasts with those who need loans to prop up a business, buy a home or get a new car. Sticker shock will take on a whole new meaning when currency conversions raise the price of the car, and loans take a bigger bite than last year.
I was never a big fan of sanctions, especially long-term ones that take months or years to take effect. We see how well they have stopped the Iranians from working on a bomb, and Russia is still in Ukraine and adding to their control of the eastern part of the country. We seem to forget that most countries with sanctions are not democracies.
They don't rely on opinion polls to govern, and they don't much care that sanctions hurt the middle class more than the rich who run the country. Criticizing the government for raising interest rates can bring consequences to the news agency or blogger that does it. Putin is going to run out of options, before he faces any kind of new revolution. He will double down in Ukraine and do what he did in Crimea - take it with overwhelming force. The Russians seem to love him for it.
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