Russia's Central Bank Battles Inflation with Major Rate Hike

Russia's central bank raised its key interest rate by 200 basis points to 18% to combat high inflation. This marks the highest rate in over two years. The bank revised its 2024 inflation forecast to 6.5-7.0% and expects inflation to decline to 4.0-4.5% by 2025. Governor Elvira Nabiullina will address the media soon.

Russia's central bank increased its key interest rate by 200 basis points to 18% on Friday, grappling with elevated inflation and an overheated economy. This move marks the highest borrowing cost in over two years. The regulator revised its 2024 inflation forecast to 6.5-7.0% and anticipates annual inflation will drop to 4.0-4.5% by 2025, aligning with its target of 4%.

Market analysts had anticipated the hike, confirmed a Reuters poll of economists, though some Russian elites preferred a more lenient approach. The current key rate is the highest since April 2022, following a spike to 20% in an emergency reaction to Russia's troops entering Ukraine.

"Inflation has accelerated beyond the Bank of Russia’s April forecast, with domestic demand surpassing supply capabilities," the bank stated. Governor Elvira Nabiullina is set to speak to the media at 1200 GMT, with the next rate decision scheduled for Sept. 13.

The Bank of Russia raised rates by 850 basis points in the latter half of 2023, including an emergency hike in August as the rouble fell past 100 to the dollar. With inflation currently at 9.18%, economists project it will remain above the bank's 4% target for the year.