By Ben Aris, Intellinews, 2/7/25

Sanctions were supposed to hurt Russia’s economy and impoverish the people, right? Do you remember when early in the war there was the hope that the quality of life would sink so far that the population would rise up and oust Russian President Vladimir Putin?

Well, not only has that not happened, but for regular Russians life hasn’t been this good for years. The Central Bank of Russia (CBR)’s sky high interest rates are a major problem and hurting companies who are now laying off staff to cut costs – especially their IT departments. But for the man on the street they are a boon and people are cashing in on them.

In around 2019 Russia was booming again and the CBR cut the overnight rate to below 4% for the first time since 1991. Russia has always suffered from high inflation for most of the last three decades, but that fell to record lows too. Good news at a macroeconomic level. Bad news for the population as the interest rates on bank deposits tumbled to next to nothing.

One of regular Russian’s obsessions is how to protect your life savings against the ravages of inflation. And this is a very serious problem. In 1993 I fell into conversation with a babushka selling knitted socks on the street. It turned out that she had a PhD and had formerly been the chief engineer at a factory. But during the collapse of the Soviet Union her factory stopped working and her life savings – some $5000 worth of rubles, which was a lot in Soviet times – got hyperinflated away to less than $1 in a matter of months.

Russian banks have long relied on deposits as their main source of funding and offer decent rates. So when the prime rate fell to next to nothing in 2020 Russian punters started casting about for something else to invest into and for the third time started buying stocks.

It was a real boom market, as we reported at the time, and after two previous failed attempts to get regular Russians to buy stocks, it looked like this time it was really working and that Russia’s capital markers had finally come of age.

Of course, it all blew up again in 2022 after the invasion of Ukraine and the markets tanked yet again. Every time there has been a wave of retail investment into stocks the market has always blown up about a year later.

Now the setup has been turned on its head. The banks are paying at least 21% on term deposits. Inflation is high at around 10%, but that still leaves an 11% real interest rate spread on money in the bank – a very nice return indeed.

And it’s safe as houses. It’s tempting to assume that putting money in the crisis-prone Russia is very risky, but actually the opposite is true. Yes, the banking sector has blown up a few times, but the CBR’s deposit insurance scheme works extremely well and if your bank goes bust, punters will get their money back within a few weeks – provided you have less than about $30,000 in your account. (The EU equivalent is €100,000 – on a par with the Russian limits in price adjusted terms.)

And people have cash to save as currently after being stagnant for much of the last decade, Russian real disposable incomes were up to a record 9.6% in July. So for regular Russians, there are plenty of jobs, nominal wages are rising by about 12% a year, again ahead of inflation, banks are paying a healthy profit on deposits and on top of that Moscow just had a very warm winter so even the weather is nice.

That may change later this year when the economic problems are expected to get worse, but for now, for most people, life is good.