The national flag flies over the headquarters of the Russian Central Bank in Moscow, Russia on May 27, 2022. REUTERS/Maxim Shemetov // Archive Photo Obtaining licensing rights
MOSCOW (Reuters) – Russia’s central bank raised its key interest rate by 100 basis points to 13 percent on Friday, raising the cost of borrowing for the third straight meeting in response to a weak ruble and other persistent inflationary pressures.
A month ago, in response to the ruble’s fall to more than 100 against the dollar and the Kremlin’s public call to tighten monetary policy, the bank raised interest rates by 350 basis points to 12% in an emergency meeting.
On Friday, the bank gave tough guidance that it would consider raising interest rates at future meetings, and said inflationary risks remained high.
Bank Governor Elvira Nabiullina said in a press conference: “We raised the interest rate due to the emergence of inflation risks, and we will keep it at high levels for a long period, until we are convinced of the sustainable nature of the inflation slowdown.” .
The bank said in a statement: “Major pro-inflationary risks have crystallized, namely the growth of domestic demand exceeding the ability to expand production and the devaluation of the ruble in the summer months.”
The decision to raise interest rates was consistent with a poll conducted by Reuters.
By 1245 GMT, the ruble rose 0.5% against the dollar to 96.85, but fell from the session high of 96.10.
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Russia gradually rolled back the emergency increase to 20% it made in February 2022 after Moscow sent troops into Ukraine and the West imposed sweeping sanctions, bringing rates down to 7.5% this year.
But as the ruble’s sharp weakness fueled inflationary risks from a tight labor market, strong consumer demand and Moscow’s large budget deficit, the central bank was forced into a tightening cycle that began in late July.
The central bank revised its inflation forecast at the end of the year to 6.0-7.0% from 5.0-6.5%. The annual inflation rate was 5.33% as of September 11, above the target of 4%.
Capital Economics said it was not convinced inflation would return to the bank’s 4% target in 2024, and expected further interest rate hikes.
“The Russian central bank is a hawkish institution that takes its commitment to fighting inflation very seriously,” said Liam Beach, chief emerging markets economist. “With fiscal policy remaining accommodative, the economy likely to continue to grow feverishly and inflation pressures rising, there will be more pressure on the central bank to tighten monetary policy.”
The bank raised its forecast for the key interest rate range for 2023 to 9.6-9.7% from 7.9-8.3%. This year’s current account surplus is now expected to reach $45 billion, up from $26 billion previously.
The bank kept its economic growth forecast for 2023 at 1.5-2.5%, but warned that the economy has now completed the recovery phase and that supply-side constraints, specifically a tightening labor market, will limit further growth.
The next rate-setting meeting is scheduled for October 27.
(Reporting by Alexander Marrow, Elena Fabrichnaya, Daria Korsunskaya and Maria Kiselyova; Prepared by Mohammed for the Arabic Bulletin) Additional reporting by Amruta Khandekar; Writing by Alexander Marrow and Mark Trevelyan in London; Edited by Andrew Osborne, William MacLean, Katherine Evans and Toby Chopra
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