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Russia Raises Key Rate Again

Russia's central bank raised its key interest rate further, citing upside risks to inflation, and said it is ready to hike rates further in future if needed.

The Board of Directors decided to raise the key interest rate by 25 basis points to 6.75 percent, the Bank of Russia said in a statement on Friday. Economists had expected a hike to 7.00 percent.

The central bank has steadily raised the rate from 4.50 percent in March, when the current sequence of hikes began.

In the second quarter, the economy returned to its pre-pandemic level, thus reaching a balanced growth path, the bank said.

"The contribution of persistent factors to inflation remains considerable on the back of faster growth in demand relative to output expansion capacity," the bank said.

"In this environment, given high inflation expectations, the balance of risks for inflation is tilted to the upside."

The bank fears a sustained deviation of inflation from its 4 percent target.

"If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate rises at its upcoming meetings," the central bank added.

The bank expects annual inflation to begin to slow down in the fourth quarter of this year and to ease 4.0-4.5 percent in 2022. Inflation is expected to remain close to 4 percent further on.

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