Russian central bank hikes interest rate to 18%
The Bank of Russia has raised its key interest rate from 16% to 18%, citing inflationary pressures. Domestic demand continues to exceed the economy’s capacity to produce goods and services to meet it, the regulator said in a statement on Friday.
Inflation has accelerated and is running substantially above the bank’s April forecast, the statement added. The Bank of Russia has “substantially revised” its projection, predicting an overall rate of 6.5-7.0% in the current year. Inflation in June stood at 8.6%, more than a double the government target of 4%.
If the interest rate had not been raised, Russia would have risked lurching into stagflation, central bank chief Elvira Nabiullina said at a press conference following the announcement. The term refers to the combination of slow economic growth, high inflation, and high unemployment.
The key rate will remain high “for as long as necessary” to bring inflation down to the government target of 4%, Nabiullina stated. A further tightening of monetary policy may be necessary, she added.
The central bank said the latest rate hike will help bring inflation down to 4.0-4.5% in 2025.
The Bank of Russia previously raised the key interest rate in December. A 100 basis points increase to 16% per annum was the fifth hike in a row since the summer of 2023, when the basis was at 7.5%.
The central bank also cited economic indicators from the second quarter of this year as showing that the Russian economy continues rapid growth. Consumer activity remains high against the backdrop of significant growth in household incomes and consumer confidence, the regulator said.
Russia’s GDP grew 3.6% in 2023 compared to the previous year. In April, the International Monetary Fund projected 3.2% growth for the country’s economy for 2024.
The Bank of Russia will hold its next key rate review meeting in September.
