Russia’s central bank raises key interest rate by 100 bps to 19%

MOSCOW: Russia’s central bank raised its benchmark interest rate by 100 basis points to 19 per cent at a board meeting on Friday (Sep 13) saying that further tightening was needed to reduce inflation.
A Reuters poll of 27 analysts ahead of the decision had predicted that the regulator would keep the rate unchanged at 18 per cent amid early signs of the economy cooling down.
But the latest inflation data, released on Thursday, showed inflation was still high and the bank said there were still risks associated with it.
The data showed that inflation had slowed to 9.05 per cent in August in year-on-year terms, only slightly down from 9.13 per cent the previous month.
“Overall, the inflation expectations of economic agents remain at elevated levels. This reinforces the inertia of persistent inflation,” the central bank said.
Seasonally-adjusted core inflation accelerated in August to 7.7 per cent from 6.1 per cent in July, according to the central bank’s calculations. Since the start of the year, prices have grown by 5.35 per cent.
The latest set of macroeconomic forecasts saw inflation at 7.3 per cent for the full year, well above the regulator’s 4 per cent target.
The central bank said earlier that inflation had peaked in July and would gradually fall towards the end of the year.
According to the forecasts, the government now expects gross domestic product (GDP) to increase by 3.9 per cent in 2024, up from 2.8 per cent in a forecast issued in April. The new figure suggests a slowdown in growth, which was 4.6 per cent in the first half of the year.
In a draft monetary policy document published last month, the central bank stated it would need to maintain a tight monetary policy for a prolonged period to achieve a sustainable decrease in inflation, which is now running at over 9 per cent.
Corporate lending growth, another major factor behind high inflation and economic overheating, accelerated to 2.3 per cent in July from 1.5 per cent in June, the latest available data showed, despite high interest rates.