The Bank of Russia has raised its key interest rate by 200 basis points to a record high of 21%, citing persistent inflation. Domestic demand exceeds the economy’s capacity to produce goods and services to meet it, the regulator said in a statement on Friday.
Inflation is “considerably higher” than the bank’s July forecast of 6.5-7.0% for this year, according to the statement. Consumer prices rose by a seasonally adjusted 9.8% year-on-year in September, following a 7.5% increase in August, it added. The regulator expects overall inflation this year to stand at 8.0–8.5%, double the government target of 4%.
The central bank noted that additional budget expenditures and a wider budget deficit recorded this year have driven inflation up.
“Additional monetary tightening is needed to ensure that inflation returns to the 2025 target, and inflation expectations are lowered,” the regulator said in its statement.
The Bank of Russia projects that its monetary policy will bring inflation down to 4.5-5.0% in 2025, and to the 4.0% target in 2026.
The regulator has embarked on a tightening campaign in recent months, hiking the key interest rate by 200 basis points in July and again from 18% to 19% in September.
According to Bank of Russia Governor Elvira Nabiullina, the tight monetary rate policy has prevented inflation from rising even further.
The current level is above the 20% implemented in 2022 shortly after the escalation of the Ukraine conflict and the Western sanctions campaign. Previously the benchmark rate stood at 21% in 2003.
Nabiullina said that another 200-basis-point increase is possible at the next meeting in December.
Earlier this week, the International Monetary Fund (IMF) ranked Russia as the world’s fourth-largest economy based on purchasing power parity (PPP). According to the Washington-based organization, Russia’s gross domestic product (GDP) in 2024 amounts to 3.55% of global GDP in terms of PPP, placing it behind China (18.8%), the US (15%), and India (7.9%).