Russia’s central bank raises interest rates to fight inflation fueled by military spending in a growing economy

MOSCOW (AP) — Russia’s central bank raised its key interest rate by a full percentage point to 19% to combat high inflation as government spending on the military strains the economy’s ability to produce goods and services and drives up workers’ wages.

The central bank said in a statement Friday that “growth in domestic demand continues to far outpace the supply of goods and services,” raising the prospect of further interest rate hikes to bring inflation back from the current 9.1% to the bank’s target of 4% in 2025.

Russia’s economy continues to show solid growth, driven by continued revenues from oil exports and government spending on goods, including the military. One result is inflation, which the central bank has tried to combat with higher interest rates that make it more expensive to borrow and spend money on goods, theoretically reducing pressure on prices.