MOSCOW, Sept 13 (Askume) – Russia’s central bank on Friday unexpectedly raised its benchmark interest rate by 100 basis points to 19%, saying inflation remained high and measures were needed to reduce it.
A Askume poll of 27 analysts ahead of the decision had predicted the central bank would keep interest rates unchanged at 18% amid possible signs of a slowdown in the economy.
But the latest inflation data released on Thursday showed inflation still remained elevated, and the central bank said there were risks of it rising further.
“Overall, inflation pressures remain elevated and have not yet shown any signs of abating,” the central bank said in a statement.
Seasonally adjusted core inflation rose to 7.7% in August from 6.1% in July, according to central bank calculations, with many analysts saying the rise was due to Friday’s rate-setting decision.
The overall inflation rate fell to 9.05% in August, slightly lower than the 9.13% of the previous month. Prices have risen by 5.35% since the beginning of the year.
The latest macroeconomic forecasts estimate full-year inflation at 7.3%, well above the central bank’s 4% target.
The central bank had previously said inflation peaked in July and would gradually decline by the end of the year.
Nabiullina said board members were assessing the need to raise rates by 20% during the meeting based on the latest data.
The Russian government currently expects GDP to grow by 3.9% in 2024, up from the 2.8% forecast in April but still slower than the 4.6% growth in the first half of the year.
“The slowdown is not primarily due to weak domestic demand, but rather to rising supply-side constraints and weak external demand,” the bank said, referring to the impact of Western sanctions.
Nabiullina said the situation with cross-border payments has worsened in recent months.
In a draft monetary policy document released last month, the central bank said it needed to maintain tight monetary policy for a longer period of time to achieve a sustained decline in inflation.
The latest data showed that despite rising interest rates, business loan growth – another key factor behind high inflation and rapid economic growth – rose to 2.3% in July from 1.5% in June.
The next board meeting is scheduled for October 25 and some analysts have already hinted at the possibility of further rate hikes. Data from the upcoming draft budget for next year will play an important role in the discussion, Nabiullina said.
Renaissance Capital analyst Oleg Kuzmin said: “This decision clearly shows that, at least for now, the government intends to continue raising interest rates in October.”
