Russian central bank surprises with sharper-than-expected rate hike to 8.5%
MOSCOW (Reuters) -Russia's central bank hiked its key interest rate by a greater-than-expected 100 basis points to 8.5% on Friday, raising the cost of borrowing as the weak rouble added to inflation pressure from a tight labour market and strong consumer demand.
It was the first time the bank had raised rates in more than a year, having gradually reversed an emergency hike to 20% made in February last year after Russia sent its armed forces into Ukraine, which prompted the West to impose sanctions on Moscow. Its last cut, to 7.5%, was in September.
«Pro-inflationary risks have increased significantly over the medium-term horizon,» the bank said in a statement. «The increase in domestic demand surpasses the capacity to expand production, including due to the limited availability of labour resources.»
This was reinforcing persistent inflationary pressure, it said, while the rouble's depreciation this year was «significantly amplifying pro-inflationary risks».
The central bank raised its year-end forecast for inflation — now just below 4% — to 5.0-6.5% from 4.5-6.5%, and said it was holding open the possibility of further hikes at future meetings.
SURPRISE DECISION
The decision surprised analysts polled by Reuters, who had forecast a 50-basis-point hike.
However, some analysts had revised their forecasts in recent days to anticipate an even larger rise as inflation data this week showed a jump in households' inflationary expectations for July and an acceleration in Russia's weekly consumer prices.
«The much larger-than-expected 100bp interest rate hike… underscores policymakers’ concerns about inflation risks,» said William Jackson, Chief Emerging Markets Economist at Capital Economics.
«And while we don’t think
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