Russia raises key rate sharply to 9.5%, does not rule out more hikes By Reuters

© Reuters. FILE PHOTO: Pedestrians walk past Russia's Finance Ministry building in Moscow, Russia March 30, 2021. A sign reads: "Ministry of Finance of the Russian Federation". REUTERS/Maxim Shemetov/File Photo

MOSCOW (Reuters) - Russia's central bank raised its key interest rate sharply to 9.5% on Friday, increasing the cost of borrowing by 100 basis points for the second time in a row, and said a further rate increase was possible.

The decision came in line with a Reuters poll of analysts who predicted the hefty increase as inflation hovers near a six-year high and the rouble has been battered by the Ukraine crisis.

"We cannot say for today that the cycle of key rate rises has completed. We hold open the prospect of a further key rate increase at the upcoming meetings," central bank governor Elvira Nabiullina said, presenting the rate move.

The central bank also raised its assessment of the average key rate level in 2022 to 9.0-11% from 7.3-8.3%, indicating there was still room for further monetary tightening.

The decision to raise the key rate to its highest level since March 2017 did not support the rouble, as it was largely priced in by the market.

The central bank raised the key interest rate seven times in 2021 from a record low of 4.25% but the monetary tightening failed to rein in inflation, which the bank targets at 4%.

As annual inflation hovered at 8.8% as of Feb. 4, the Bank of Russia revised its year-end inflation forecast to 5.0-6.0%, giving up on its earlier hopes that it would slow to 4.0-4.5%.

Short-term risks of higher inflation have intensified due to global market volatility that is caused by "various geopolitical events", which may affect the rouble and inflation expectations, the bank said.

High inflation dents living standards and has been one of the key concerns among households, prompting President Vladimir Putin to call for pre-emptive measures to put the brakes on growing prices.

Higher rates are supportive of the rouble and can help tame inflation by pushing up lending costs and increasing the appeal of bank deposits.

    The next rate-setting meeting is scheduled for March 18.

Statement: The content of this article does not represent the views of FTI website. The content is for reference only and does not constitute investment suggestions. Investment is risky, so you should be careful in your choice! If it involves content, copyright and other issues, please contact us and we will make adjustments at the first time!