In order to curb inflationary pressure, Russia’s central bank has been consistently raising its interest rate. The latest revision moved it up to 21 per cent, a rate not seen in about 20 years. Whereas it may help suppress inflation, businesses taking out loans are suffering, and Russian Railways (RZD) is no exception.
RZD is expecting its interest payment to grow up to 7 billion dollars (6,63 billion euros) in 2025, according to Reuters. At the moment, those interest payments are around 3 billion, meaning that they are likely to more than double over the next year.
The 7 billion euros in interest payments next year constitute a six-fold increase from 2023. In the first six months of 2024, RZD spent around one billion euros in interest payments. Its total debt will likely grow to 37 billion euros in 2025, according to a company document.
In combination with a new higher tax rate, up by 5 per cent to amount to a total of 25 per cent, RZD will likely attain a profit in 2025 only half as large as the one it achieved in 2023: 81,6 billion rubles (approximately 770 million euros).
Pegged debt
The reason for Russian Railways’ interest payment growth is that it has long and short term debt pegged to the central bank’s interest rate. As the interest rate grows, so do the payments that RZD owes to its creditors. As Russia predicted interest rates to reach a peak of 7,5 per cent in 2024, many companies took on debt with rates following the central bank’s interest rate with the expectation that that would be a good financial deal. Now that interest rates are much higher than expected, the debt burden is suddenly a lot bigger.
European Silk Road Summit 2024
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