The Central Bank of the Russian Federation increased the key rate by 100 basis points to 8.5%

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Russia’s central bank raised interest rates by 100 basis points to 8.5% as a weak ruble added to inflationary pressures due to a tight labor market and strong consumer demand.

About this writes Reuters.

It is noted that this is the first time the regulator has raised rates in more than a year.

After the invasion of Ukraine, the Central Bank of the Russian Federation sharply raised the interest rate to 20%, gradually reducing it to 7.5% in September.

In a statement, the Central Bank states that pro-inflationary risks have increased significantly in the medium term, and the increase in domestic demand exceeds the possibilities of expanding production, including due to the limited availability of labor resources.

The regulator also raised its inflation forecast for the end of the year to 5.0-6.5% from 4.5-6.5% and stated that it does not allow further increases at future meetings.

The decision to raise the key rate surprised analysts polled by the paper, who had forecast a 50 basis point hike.

In recent days, however, some analysts have revised their forecasts to predict even more growth, as inflation data this week showed a jump in household inflation expectations in July and an acceleration in weekly consumer price gains in Russia.

“A much larger-than-expected 100 basis point interest rate hike … underscores policymakers’ concerns about inflation risks,” said William Jackson, chief emerging markets economist at Capital Economics.

The pressure on the ruble intensified after the failed armed rebellion by Wagner’s mercenary group at the end of June. Attacks on Russian infrastructure, which Moscow blames on Ukraine, have also reduced risk appetite.

Economic truth.

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