Russia’s central bank raised its benchmark rate by 100 basis points on Friday and maintained a hawkish bias as proinflationary risks are assessed to be substantial and the economy exhibits faster than previously envisaged growth.
The board of directors of Bank of Russia, headed by Elvira Nabiullina, decided to lift the key rate by 100 basis points to 16.00 percent.
The bank has raised the policy rate by 850 basis points over the last five meetings.
Inflation is forecast to be close to the upper bound of the 7.0-7.5 percent forecast range this year.
Given the current monetary policy stance, annual inflation is expected to ease to 4.0-4.5 percent next year and will stabilize close to 4 percent further on.
“The return of inflation to target in 2024 and its further stabilization close to 4 percent assume that tight monetary conditions will be maintained in the economy for a long period,” the bank said.
Economic growth is projected to outperform its October forecast and exceed 3 percent this year.
Domestic demand helped the economy to register an upward deviation from the balanced growth path.
While rising wages and lending boosted consumer activity, significantly increased profits of companies and fiscal stimulus lifted high investment demand.
Although the consensus view before today’s meeting was that rates would reach a peak of 16.00 percent, more tightening is to come as inflation pressures build further, Capital Economics’ economist Liam Peach said.
The economist expects another 100 basis point of hikes next year, to 17.00 percent.
The central bank had raised its benchmark rate to 20.00 percent from 9.50 percent in February 2022, soon after Russia invaded Ukraine. But the bank gradually reversed this move.
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