© Reuters. FILE PHOTO: Pedestrians walk past the Central Bank headquarters in Moscow, Russia, August 15, 2023. REUTERS/Shamil Zhumatov/File Photo
By Elena Fabrichnaya and Alexander Marrow
MOSCOW (Reuters) -Russia’s central bank raised its key interest rate by a higher than expected 200 basis points to 15% on Friday, hiking borrowing costs for the fourth meeting running in response to a weak rouble and stubborn inflation pressure.
The central bank has now raised rates by 750 basis points since July, including an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy.
“Current inflationary pressures have significantly increased to a level above the Bank of Russia’s expectations,” the bank said in a statement, pointing to domestic demand outpacing the provision of goods and services, and high lending growth.
The bank also drew attention to increasing government spending as Russia pours fiscal resources into the defence sector and ramps up production of military supplies to prosecute what it calls its “special military operation” in Ukraine.
“The updated medium-term parameters of fiscal policy assume a slower than expected decline in fiscal stimulus in the years ahead,” the bank said.
The majority of analysts polled by Reuters had expected a smaller hike to 14%.
The central bank’s tightening cycle began this summer when inflationary pressure from a tight labour market, strong consumer demand and the government’s budget deficit was compounded by the falling rouble.
Russia had gradually reversed an emergency hike to 20% which it made in February 2022 after Moscow sent its troops into Ukraine, prompting sweeping Western sanctions. It cut rates to as low as 7.5% earlier this year.
The central bank said inflation would range from 7.0-7.5% in 2023. It had previously forecast year-end inflation at 6.0-7.0%. Annual inflation was running at 6.38% as of Oct. 16, above the bank’s 4% target.
The bank maintained its hawkish signal, stating tight monetary conditions would be maintained for a long period.
Central Bank Governor Elvira Nabiullina was due to give a media briefing at 1200 GMT on the bank’s forecasts and policy.
The next rate-setting meeting is scheduled for Dec. 15.
