Russia Raises Rates Again

Russia's central bank hiked the key interest rate further, citing substantially high inflation and significant upside risks to the outlook, and signaled more hikes if price pressures remain high in future.

The Board of Directors decided to raise the key interest rate by 75 basis points to 7.50 percent, the Bank of Russia said in a statement on Friday. Economists had expected a hike to 7.25 percent.

Inflation is turning out to be substantially above the forecast and is expected to be within the range of 7.4-7.9 percent at the end of this year, the bank said in a statement.

The bank noted that the contribution of persistent factors to inflation remains considerable amid the faster growth in demand relative to output expansion capacity.

"In this environment, given that inflation expectations are up again, the balance of risks for inflation is markedly tilted to the upside," the bank said.

Consequently, the bank expects a more sustained deviation of inflation from the target of 4 percent.

"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 said.

The central bank forecast annual inflation to ease to 4.0-4.5 percent in 2022 and to remain close to 4 percent thereafter.

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