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Russia hiked interest rates for the first time since shortly after the country’s full invasion of Ukraine as it struggles to push inflation back to its 4% target.
The Bank of Russia raised its key rate by 100 basis points to 8.5%, citing “persistent inflationary pressure in the economy” caused by among other things domestic demand outpacing production capacity, limited labor resources — after men were called up to fight in Ukraine — and a weak ruble.
The central bank forecasts that inflation will be 5% to 6.5% in 2023 and therefore it “holds open the prospect of further key rate increase at its next meetings to stabilize inflation close to 4% in 2024 and further on.”
Analysts had expected a rate rise but few thought it would be by a full percentage point and so the U.S. dollar
USDRUB,
is 0.8% weaker at 90.45 rubles.
The dollar hit a record high versus the Russian currency of more than 130 rubles in March 2022 after the west imposed sanctions on Moscow following its full invasion of Ukraine a few weeks earlier.
The Bank of Russia forced rates to 20% to protect the ruble at that time, and after trimming borrowing costs through last year, Friday’s hike is thus the first increase in more than 15 months.
Moscow’s MOEX index, the equity benchmark, was down just 0.1% having gained 35% so far this year. The dollar-denominated RTS index is up just 4% over the same period.
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