Russia Central Bank Lifts Key Rate By 100 Bps

Russia’s central bank raised its key rate by a full one percentage points on Friday as inflation continued to stay well above the target.

The Board of Directors of Bank of Russia decided to lift the key interest rate to 9.50 percent from 8.50 percent. The decision came in line with expectations.

Signaling further rate hikes, the bank said “the bank holds open the prospect of further key rate increase at its upcoming meetings.”

The board observed that inflation is developing appreciably above the October forecast and the balance of risks has tilted even more towards proinflationary ones.

The effect of proinflationary factors may be intensified by elevated inflation expectations and corresponding secondary effects, policymakers noted.

If inflation rise further in February, there is a possibility that the central bank will opt for one more interest rate hike of 50-75 bps in March, Liam Peach, an economist at Capital Economics, said.

The central bank’s monetary policy stance is aimed to return inflation to 4 percent, the bank said.

Given the current monetary policy stance, the bank expects inflation to ease to 5.0-6.0 percent in 2022 and return to the target in the middle of 2023.

However, the projection for this year was revised up from 4.0 percent to 4.5 percent estimated in December.

According to the latest central bank forecast, the Russian economy will return to its balanced growth path by the end of 2023.

The economy is projected to grow 2.0-3.0 percent this year. Further, the annual growth rate will equal 1.5-2.5 percent next year and 2.0-3.0 percent in 2024.

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