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Bank of Russia hikes key interest rate

The increase by 2 percentage points to 15% per annum is the biggest increase since May of last year

The Bank of Russia on Friday raised the key rate by 200 basis points to 15% per annum, stating that current inflationary pressures have significantly increased, to a level above the regulator’s expectations.

According to the statement, steadily rising domestic demand is increasingly exceeding the economy’s ability to expand the production of goods and the provision of services. Inflation expectations remain elevated, the central bank said, adding that lending growth rates are invariably high.

“The updated medium-term parameters of fiscal policy assume a slower-than-expected decline in fiscal stimulus in the years ahead. Therefore, it is required to additionally tighten monetary policy to limit the upward deviation of inflation from target and return it to 4% in 2024.” 

According to the regulator’s updated forecast, annual inflation in Russia will range from 7.0% to 7.5% in 2023. Given the current monetary policy stance, annual inflation will decline to 4.0–4.5% in 2024 and stay close to 4% further on, it pointed out.

The central bank noted that recent data for the third quarter suggests the economy is expanding faster than the regulator expected in September.

“High domestic demand is inducing the upward deviation of the Russian economy from the path of balanced growth. This is strengthening persistent inflationary pressures,” it stated.

The Russian ruble strengthened following the news about the rate hike, trading below 93 to the dollar and below 98 against the euro as of 2:00pm local time in Moscow.

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