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Russia Holds Key Rate Steady After December Hike

Russia's central bank left its key rate unchanged in February, after raising it in December, saying that the balance of risks remains skewed towards pro-inflationary prospects.

The Board of Directors decided to hold the key rate steady at 7.75 percent, the Bank of Russia said in a statement on Friday, in line with economists' expectations.

The previous change in the rate was a quarter-point hike in December. A similar size raise was undertake in September, which was the first since 2014.

Inflation expectations of households and businesses increased somewhat, the bank said, adding that the effect of the VAT increase on inflation can be fully assessed no sooner than this April.

"There persists uncertainty over future external conditions and certain food price dynamics," the bank said. "The balance of risks remains skewed towards pro-inflationary risks, especially over a short-term horizon."

The Bank of Russia forecast annual inflation to range between 5.0 and 5.5 percent by the end of this year and return to 4 percent in the first half of 2020.

"In its key rate decision-making, the Bank of Russia will determine if the increases of the key rate in September and December 2018 were sufficient to bring annual inflation back to the target in 2020, taking into account inflation and economic performance against the forecast, as well as the risks associated with external conditions and financial markets' response to them," the bank said.

Full year 2018 growth at 2.3 percent exceeded the central bank's forecast of 1.5-2 percent. The bank maintained its growth forecast for 2019 in the range of 1.2-1.7 percent.

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