Russia's Central Bank Increases Interest Rate to 19% Amid High Inflation

Russia's central bank raised its benchmark interest rate to 19% to counter stubbornly high inflation. The decision follows a rise in seasonally-adjusted core inflation and persistent inflationary pressures. The bank forecasts inflation to exceed targets, necessitating tight monetary policy. Growth forecasts indicate a GDP slowdown due to supply constraints and decreased external demand.

Russia's central bank has raised its benchmark interest rate by 100 basis points to 19%, following continued high inflation. During its latest board meeting, the bank emphasized that inflation pressures remain high and necessary tightening is needed.

While many analysts had anticipated the rate would remain at 18% due to early signs of economic cooling, new data indicates core inflation accelerated to 7.7% in August, prompting the decision. Year-on-year inflation slightly declined to 9.05% in August compared to 9.13% in July.

Macroeconomic forecasts predict inflation at 7.3% this year, significantly above the central bank’s 4% target. Despite some recovery in GDP, which is expected to grow by 3.9% in 2024, the slowdown is mainly attributed to supply-side constraints and diminishing external demand amid Western sanctions.

Corporate lending growth—a major inflation driver—also surged despite high interest rates, adding to the regulator's concerns. Analysts, like Oleg Kuzmin from Renaissance Capital, suggest further rate hikes could be expected in the upcoming October meeting.