Russia’s central bank raised its benchmark rate by a bigger-than-expected 100 basis points on Friday as a weak ruble intensified pro-inflationary risks.
The Board of Directors of the Bank of Russia, led by Governor Elvira Nabiullina, decided to raise the key rate by 100 basis points to 8.50 percent.
The bank said the monetary policy will curtail upward deviation of inflation from the target and aimed at bringing it back to the 4 percent target next year. Pro-inflationary risks have increased significantly over the medium-term horizon, the bank added.
The bank also said it was holding open the possibility of further interest rate increases at its upcoming meetings to stabilize inflation close to the target.
Today’s rate cut was the first in more than a year. In an emergency move, the central bank had raised the key rate to 20.00 percent from 9.50 percent in February 2022 after invading Ukraine. Later the bank gradually reversed the sharp rate hike.
The pass-through of the depreciation of the ruble is gaining momentum, the bank said. The bank observed that the increase in imports amid declining exports was the main factor for the weakness of the ruble since early 2023.
In the forthcoming quarters, demand for imports will adjust to the weaker ruble already in place, the bank said.
The central bank estimates inflation to come in the range of 5.0-6.5 percent this year and return to 4 percent in 2024, and stabilize close to 4 percent further on.
The economy is forecast to grow 1.5-2.5 percent in 2023 and 0.5-2.5 percent next year.
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