Russia's Central Bank Shock Rate Hike: Economic Stabilization at Stake

Russia's central bank raised its key interest rate by 200 basis points to 21% to combat inflation, driven by high budget spending. The move signals a tough stance amid inflationary pressures and geopolitical challenges, reflecting political backing amidst criticism from prominent business figures in Russia.

Russia's central bank has made a bold move by hiking its key interest rate by 200 basis points, reaching 21%. The decision aims to combat inflation currently at 8.4%, influenced by significant budget expenditure and public inflation expectations at their peak for the year.

The bank emphasized the necessity of further monetary policy tightening to control inflation, with hawkish rhetoric suggesting another hike is possible in upcoming meetings. This decision was unexpected by analysts, who had anticipated a smaller increase, taking into account Russia's new, inflationary budget.

This move highlights political support for the bank amidst pressures from top business magnates. Despite these measures, corporate lending remains steady, while the IMF has reduced Russia's economic growth forecast, citing a tightening labor market and moderate wage increases.

(With inputs from agencies.)