Russia raises key rate to 4.5% amid inflation and geopolitical threats

MOSCOW (Reuters) – Russia’s central bank raised its key interest rate to 4.5% on Friday amid inflation and geopolitical risks and indicated that further rate hikes would follow.

PHOTO FILE: Elvira Nabiullina, Governor of the Central Bank of Russia, will speak at an interview in Moscow, Russia June 27, 2019. REUTERS / Evgenia Novozhenina

The decision to raise the rate from a low of 4.25% contradicted the Reuters poll which expected Russia to keep the cost of borrowing unchanged for the last time before starting a rate hike. .

“The balance of risks has shifted towards those outside of inflation … The Bank of Russia insists that further increases in key rates are expected at forthcoming meetings. come, ”the bank said in a statement.

The central bank’s move follows a recent downturn in the ruble driven by fear of sanctions. He is according to his Brazilian and Turkish counterparts who delivered an aggressive rate walking week.

Russia’s currency fell this week after US President Joe Biden said his Russian representative Vladimir Putin would pay a “price” for attempts to run in the 2020 U.S. presidential election, something which the Kremlin denies.

“The short-term risks of inflation are also linked to stronger volatility in global markets, driven by various geopolitical developments, among other factors, which could affect exchange rates and expectations. inflation, ”said the central bank.

The central bank said that inflation, its main area of ​​responsibility, will return to its 4% target only in the first half of 2022, longer than previously expected.

Annual inflation was 5.8% as of March 15 but will soon be seen to slow, the bank said.

Central bank rates plummeted in 2020, delivering the last rate cut in July, when the economy was hit by a fall in oil prices, Russia’s main export. The coronavirus pandemic has also affected the economy, which is on track to recover this year.

Lower rates will support the economy through cheaper loans but they can also lead to inflation and make the ruble more vulnerable to outside shocks.

The Ruble extended gains after the rate move, trading at 73.82 against the US dollar against levels around 73.98 seen before publication.

Central bank governor Elvira Nabiullina will shed more light on the central bank’s monetary policy forecasts and plans at an online press conference at 1200 GMT.

The next set rates meeting is scheduled for April 23rd.

Reciting with Andrey Ostroukh, Gabrielle Tétrault-Farber, Elena Fabrichnaya, Alexander Marrow, Maria Kiselyova, Katya Golubkova; Edited by Andrew Osborn