Russia Central Bank Raises Key Rate to 6.5%

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Central Bank of Russia raised its key interest rate to 6.5 percent on Friday to combat persistently high inflation, and said that even after the 100-basis-point rise, which was the largest since late 2014, more rate hikes were attainable, Reuters reports.

Russia began a monetary tightening cycle this year to reign in inflation, which is a delicate topic ahead of the September legislative election, after lowering rates to a historic low of 4.25 percent amid the COVID-19 epidemic in 2020.

In announcing the rate rise, Central Bank Governor Elvira Nabiullina noted that the bank contemplated 50 and 75-basis-point hikes but decided on a more aggressive step to bring inflation back to its objective of 4%.

After annual consumer inflation, the central bank’s major area of responsibility, performed admirably and surged to 6.5 percent in June, the highest level since August 2016, when the key rate was 10.5 percent, the central bank decided to raise rates for the fourth time this year.

Inflation will end this year at 5.7-6.2 percent, then recover to 4.0-4.5 percent in 2022, according to the central bank. The bank also updated its economic predictions, now expecting the economy to grow at a rate of 4.0-4.5 percent in 2021, up from 3-4 percent previously.