Russia's central bank boss has issued a warning that the country's wartime economy is at risk of overheating

• Russian central bank governor Elvira Nabiullina warned the country's economy is at risk of overheating.
• The Bank of Russia hiked its key interest rate from 15% to 16% last Friday to cool inflation.

Russia's sanctions-hit economy has appeared unusually resilient nearly 22 months into its war with Ukraine — but it may just be running too hot.

In fact, Russia's economy runs the risk of overheating, warned Elvira Nabiullina, the country's central bank governor, as she hiked the country's key interest rate to 16% last Friday, according to an official transcript.

"The economy is expanding so rapidly because it is using almost all the resources available," said Nabiullina.

"A stubborn high inflation is evidence that the economy has deviated from its potential and lacks capacities to meet soaring demand," she added.

Russia reported 5.5% GDP growth in the third quarter of this year — reversing a 3.5% decline in the same period last year, while unemployment has hit a record low as many have left the country or are fighting in the war.

Reports suggest that much of the country's growth is due to massive military and government spending.

Russia's economic growth has spurred inflation, which reached 7.48% in November — up from 6.69% in October, according to official statistics.

The Russian central bank is thus seeking to cool the economy by taming inflation via the use of higher interest rates that seek to dampen demand and cool prices. The country's medium-term inflation target is 4%.

"Imagine the economy as a car. If you try to drive faster than allowed by car specifications, the engine will overheat sooner or later, and we will not be able to travel a long distance. Possibly, we will be driving fast, but for a short period," explained Nabiullina.

"When the economy is overheated, that is, it lacks sufficient production and labor resources, the manufacture of each new item would involve increasingly more difficulties and continuously rising costs," she added.

Following the rate hikes, the central bank forecast inflation will slow to 4% to 4.5% next year from 7% to 7.5% expected for this year.

Russia's inflation rate is a hot topic head of the country's March presidential election where Putin is seeking a fifth term. Analysts say the Russian leader is certain to win.

In an annual end-of-year Q&A session with the Russian media and the public last Thursday, Russian President Vladimir Putin even apologized for the prices of eggs — a food staple — that have risen 40% since the beginning of the year.

While Putin's administration has managed to keep up a rosy facade for Russia's economy, the country's official economic statistics are nearly impossible to verify.

Igor Lipsits, a prominent Russian economist, told Reuters last month that "the real situation is bad" for the country's economy.