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Russia Central Bank Hikes Key Rate By 100 Basis Points As Expected

russia central bank 032318 23jul21 lt

Russia's central bank raised its key interest rate by 100 basis points on Friday, to bring the inflation to the target.

The Board of Directors decided to increase the key rate to 6.50 percent from 5.50 percent. The outcome of the meeting came in line with economists' expectations.

The bank has lifted its benchmark rate by a cumulative 225 basis points since March.

The central bank said, "The balance of risks remains significantly shifted towards proinflationary ones." Policymakers viewed that high inflation expectations may cause inflation to deviate upwards from the target for a longer period.

Annual inflation is forecast to reach 5.7-6.2 percent this year. Given the monetary policy stance, annual inflation will edge down to 4.0-4.5 percent in 2022 and will remain close to 4 percent further on, the bank said.

The economy is projected to grow in the range of 4.0 to 4.5 percent in 2021. In 2022-2023, the Russian economy will grow 2.0-3.0 percent annually.

"If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate increase at its upcoming meetings," the bank said.

The bank added that today's decision will speed up the adjustment of bank interest rates to the monetary policy pursued.

The hawkish tone of the central bank, with inflation unlikely to return to target next year, Liam Peach, an economist at Capital Economics, said there will be an additional 75 basis point of interest rate hikes, to 7.25 percent by year-end.

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