Bank of Russia Hikes Interest Rate and Signals More is Ahead
The Bank of Russia lifted its key policy rate by 0.75 percentage points, from 6.75% to 7.5% on Friday. This is the sixth rate hike in a row: last time the Central Bank raised it by 0.25 percentage points.
Against the background of the CBR decision, the dollar exchange rate on the Moscow Exchange dipped below 70 rubles for a short period of time for the first time since June 2020.
Analysts expected more modest policy tightening: according to the Bloomberg consensus forecast, more than 50% of economists surveyed predicted a 0.25 percentage point increase in the rate, while the rest expected a 0.5 percentage point increase.
The aggressive interest rate hike came as a response to increasing inflation pressures, risk of inflation expectations getting out of control.
In September, inflation in Russia accelerated to 7.4% after 6.7% in August, and according to the latest data for the second full week of October, the rise in prices reached 7.8%. “The contribution to inflation from the side of persistent factors remains significant due to the faster expansion of demand compared to the possibilities of increasing output. In these conditions and taking into account the newly increased inflationary expectations, the balance of risks for inflation is significantly shifted towards pro-inflationary ones. This may lead to a longer deviation of inflation upwards from the target”, the Central Bank said in a statement.
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