Russia's Central Bank Hikes Key Interest Rate to 18% to Combat High Inflation

Russia's central bank has raised its key interest rate by 200 basis points, bringing it to 18%, the highest level in over two years. This move aims to combat high inflation, which has been accelerating faster than expected. The bank also revised its inflation forecast for 2024 to 6.5–7.0%, and expects inflation to decline to 4.0–4.5% by 2025, in line with its target.

Russia's central bank has raised its key interest rate by 200 basis points to 18%, the highest in more than two years, in a bid to combat soaring inflation and an overheated economy. This move comes amid rising prices and increasing domestic demand, which outpaces the supply of goods and services.

The market expected this hike, according to a Reuters poll of economists, although some within the Russian elite favored a more dovish approach. The key interest rate is now at its highest since April 2022, following a previous increase to 20% after Russia's military actions in Ukraine.

The Bank of Russia emphasized that inflation has been escalating faster than its April forecast, necessitating tighter monetary policy. Governor Elvira Nabiullina is scheduled to address the media later today. The bank's next rate decision is set for September 13.

Rates have surged by 850 basis points in the latter half of 2023, including an emergency hike in August as the ruble's value plummeted. Inflation currently stands at 9.18% in 2023, a decrease from 11.9% in 2022 but still significantly above the bank's 4% target.

(With inputs from agencies.)