The Russian Economy is Declining: The Economist Named the Central Bank's Mistake.

The Central Bank of the Russian Federation is increasing the key rate to combat rising prices, but this has an additional negative impact on the civilian sectors of the economy.

"Why does an increase in the rate lead to a decrease in inflation? The problem is that resources are limited. As soon as a particular economic sector requires more resources, their price begins to rise. The price of resources affects the cost of production, including product prices," explained the expert.

Economist Oleg Pendzin noted that the high cost of resources leads to a reduction in the business's economic capabilities and worsens project prospects.

"The higher the cost of resources and the key rate, the fewer businesses are willing to take loans. A decrease in demand for resources reduces inflation. This means that the price of resources doesn't rise, and therefore, the price of end products remains stable," the expert explained.

However, such a mechanism only works if budget funds are not granted to a specific economic sector. For example, the military-industrial complex is being provided with resources to increase production, while civilian sectors of the economy must take resources from banks at high interest rates on loans.

"Thus, the Central Bank fights inflation, but at the same Time leads to a decrease in the production volumes of civilian sectors needed for consumption by the population," noted Pendzin.

The expert drew parallels with the Soviet Union, where a large amount of resources was directed to the military-industrial complex, while civilian sectors of the economy faced a sharp decline. This led to empty store shelves.

"Because a large amount of government money and resources was directed towards military expenses, while the production of civilian goods was decreasing," reminded the economist.