• The Russian central bank on Friday raised its key interest rate by 200 basis points to 21%, citing consumer price increases significantly higher than its forecasts and warning of persistent high inflation risks at medium term.
• The move exceeds the 100 basis point increase expected by analysts and brings the institution’s benchmark rate to its highest level since February 2003, according to Reuters.
• The key rate had previously been raised by 100 basis points to 19% in September.

The Russian central bank on Friday raised its key interest rate by 200 basis points, to 21%, citing consumer price increases significantly higher than its forecasts. and warning of the persistence of high inflation risks in the medium term.

The key rate was raised by 100 basis points to 19% in September.

Friday’s decision exceeds the 100 basis point hike expected by analysts and takes the institution’s benchmark rate to its highest level since February 2003, according to Reuters. It last reached levels near the same level in February 2022, when Russian policymakers I increased it to 20% to appease local markets days after Moscow invaded neighboring Ukraine.

The bank struck a hawkish tone regarding new policy measures on Friday. In a briefing following the decision, Russian Central Bank Governor Elvira Nabiullina said the institution’s board had considered raising the benchmark rate above 21% and left open the possibility of further increases at the next meeting in December, according to Google-translated by Google. comments broadcast by the Russian state news agency Tass.

Seasonally adjusted annual inflation reached an average of 9.8% in September, compared to 7.5% in August. It now forecasts the figure to be in the range of 8.0-8.5% by the end of 2024 – and is “considerably higher” than a July forecast of close to 6.5-7.0%.

“In the medium term, the balance of inflationary risks remains clearly tilted upwards,” the bank said in a press release. “The main risks are related to the persistence of high inflation expectations and the upward deviation of the Russian economy from a balanced growth trajectory, as well as a deterioration in foreign trade conditions. “

The bank expects annual inflation to decline to 4.5-5.0% in 2025 and to 4.0% in 2026.

Russia’s economy has been hampered by falling global prices for its main oil exports and Western sanctions, which have restricted trade to the point of depleting Moscow’s coffers for the war in Ukraine and contributing to fall of the ruble. The US dollar was up 0.36% against the ruble as of 12:52 p.m. London time.

Russian interest rate hikes – which come as the European Central Bank and the US Federal Reserve embark on monetary policy easing measures – expressed concerns on a possible stifling of the country’s economic growth.

The International Monetary Fund forecast Inflation in Russia will average 7.9% this year, noting in its October World Economic Outlook that the country’s GDP will decline from 3.6% this year to 1.3% in 2025, ” while private consumption and investment slow down in a context of less tension on the labor market and a slowdown in the labor market. wage growth. »