MOSCOW: Russia’s central bank unexpectedly raised its benchmark interest rate by 100 basis points to 19% on Friday, saying that inflation remained stubbornly high and action was needed to reduce it.
A Reuters poll of 27 analysts ahead of the decision had predicted that the bank would keep the rate unchanged at 18% amid tentative 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 risks it could become entrenched.
“Overall, persistent inflationary pressure remains high and has not yet shown a tendency to decrease,” the central bank said in a statement.
Seasonally-adjusted core inflation accelerated in August to 7.7% from 6.1% in July, according to the central bank’s calculations, with many analysts saying this rise triggered Friday’s rate decision.
Overall inflation slowed to 9.05% in August in year-on-year terms, only slightly down from 9.13% the previous month. Since the start of the year, prices have risen 5.35%.
The latest set of macroeconomic forecasts project inflation at 7.3% for the full year, well above the central bank’s 4% target.
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The central bank said earlier that inflation had peaked in July and would gradually fall towards the end of the year.
Nabiullina said the board members had been assessing the need to hike the rate to 20% during the meeting based on the latest data.
Russia’s government now expects gross domestic product to increase by 3.9% in 2024, up from 2.8% in its April forecast but still marking a slowdown from growth of 4.6% in the first half of the year.
“This slowdown is likely primarily related not to a cooling of domestic demand, but to increasing supply-side constraints and a decrease in external demand,” the bank said, referring to the impact of Western sanctions that have disrupted Russia’s trade with its main trading partners.
Nabiullina said the situation with cross-border payments had worsened in recent months.
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.
Corporate lending growth, another major factor behind high inflation and economic overheating, accelerated to 2.3% in July from 1.5% in June, the latest available data showed, despite high interest rates.
The next board meeting is scheduled for Oct.25 and some analysts have already suggested that further rate hikes are possible. Nabiullina said figures from next year’s draft budget, due to be unveiled soon, would play a role in the discussion.
“The decision indicated a clear intention, at least at this moment, to continue raising the rate in October,” said Renaissance Capital analyst Oleg Kuzmin.