Russia Hikes Interest Rate By 200 Bps; Signals Another Hike
25 Oktober 2024 - 10:00AM
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Russia's central bank raised its benchmark rate by
larger-than-expected 200 basis points and also hinted at another
hike next month as inflation expectations increased and additional
fiscal spending lifted proinflationary effects.
The board of directors, led by Governor Elvira Nabiullina,
raised the key rate to a record 21.00 percent from 19.00
percent.
The bank has raised the key interest rate by 1,350 basis points
since July 2023.
The board observed that further tightening of monetary policy is
required to ensure the return of inflation to the target and reduce
inflation expectations. "The Bank of Russia holds open the prospect
of increasing the key rate at its upcoming meeting," the bank said
in a statement.
Inflation is expected to be in the range of 8.0 percent to 8.5
percent by the end of 2024. Annual inflation is projected to slow
to 4.5 percent -5.0 percent next year and 4.0 percent in 2026, and
stay at the target further on.
The bank noted that inflation expectations increased
considerably mainly as a reaction to the current high inflation.
Further, growth in domestic demand is outstripping the capabilities
to expand the supply of goods and services.
Moreover, additional fiscal spending and the related expansion
of the federal budget deficit in 2024 have proinflationary effects,
policymakers observed.
Today's hike is evidence that despite President Putin's efforts
at this week's BRICS summit to portray Russia's economy as
watertight - the war is creating significant challenges for
policymakers, Capital Economics' economist Nicholas Farr said.
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