Russia's central bank is expected to deliver a major rate hike later this week as inflation continues to rise in the war-torn economy.

Russia's consumer price index continues to rise despite repeated rate hikes by the central bank designed to curb rampant price increases. The consumer price index hit 8.9% in November compared to the same month of the previous year, up from 8.5% in October, driven mainly by the increase in food prices..

A weaker ruble - following new US sanctions in November - also boosted inflationwhich would raise the cost of imports to Russia, a country whose economy was badly hit after its invasion of Ukraine in 2022.

Economists now expect Russia's central bank, the CBR, to raise rates by 200 basis points at its meeting on December 20 — while the country's key interest rate will be 23%.

"The renewed acceleration in Russian inflation to 8.9% year-on-year in November, and the likelihood of further increases in the coming months, argue strongly in favor of another large interest rate hike from central bank," Liam Peach, senior Emerging Markets. economist at Capital Economics, said in a note last week.

Prices are expected to continue rising, he added, with inflation likely to rise "well above" 9.0% year-on-year until the end of 2025.

"With firm price expectations also hitting new highs recently, there is a clear argument that the central bank is losing the battle against inflation and will be forced to raise rates again suddenly ... A rate increase of 200 basis points is the base case in our view, but there are arguments in favor of a larger increase,” Peach said.

The central bank enacted a 200 basis point rate hike at its last meeting in Octoberwarned that inflation was running "considerably higher" than its summer forecast and that inflation expectations were continuing to rise.

"Growth in domestic demand is significantly outstripping capacities to expand the supply of goods and services," the CBR said. in a statement.

Russian consumers were especially hit as they saw staple food items, such as butter, eggs, sunflower oil and vegetables. high double-digit price increases as demand exceeds supply.

Russia's war against Ukraine also caused labor and supply shortages that raised labor and production costs — and these costs were ultimately passed on to consumers. The government, however, blames the high cost of living on sanctions imposed on Russia by "unfriendly" countries. For his part, Russian President Vladimir Putin denied exchanging "butter for guns".

The International Monetary Fund predicts that Russia will log growth of 3.6% in 2024 before deceleration next year, when growth of 1.3% is forecast. The "sharp slowdown," the IMF said, was expected "as private consumption and investment slow amid reduced labor market tightness and slower wage growth."

While Russia has sought to avoid the pain of sanctions by substituting the import and export of oil and gas to countries that are willing to accept them, the international penalties are hurting.

The Russian ruble fell sharply against the dollar in November, weakens to 114 against the greenback — the lowest level since March 2022 — after another round of US sanctions targeting Russia's third-largest bank, Gazprombank. The measures are aimed at preventing the bank — which the US Treasury has said acts as a conduit for Russia to buy military materials and pay Russian soldiers — from handling any energy-related transactions involving the US financial system.

The ruble's sharp move lower prompted the central bank to intervene to shore up the currency, with the CBR he said stop foreign purchases in the domestic currency market for the rest of the year "in order to reduce the volatility of the financial markets."

Putin commented on the situation last month, stressing that the situation is under control.

"There is absolutely no basis for panic," Putin told reporters, news agency RIA Novosti reported.

"As for the fluctuations in the exchange rate of the ruble, this is connected not only to inflation processes, it is also connected to payments to the budget, it is connected to oil prices. There are many factors of a seasonal nature," he added, in comments translated by Google.

The ruble has strengthened in recent weeks but has continued to fall around 3% against the dollar over the last month. It last traded at 103 against the greenback on Monday.

Russia's central bank can do little to tackle inflation—and the ruble's deterioration—while the war drags on, according to analysts Alexandra Prokopenko and Alexander Kolyandr.

"The fundamental reasons for the ruble's weakness have gone nowhere, and the dynamics of Russia's trade flows mean that the currency is destined to weaken and inflation to rise," noted in the analysis for Carnegie Politika.

"As the Russian economy slows despite significant state spending, the dynamics of the ruble exchange rate suggest that the country is headed for stagflation (a toxic combination of slow growth and rising prices )," they said.

"The main cause is the war and the resulting Western sanctions and the militarization of Russia's economy. The country's financial authorities do not have the power to solve this problem - and they are even afraid to talk about it publicly."