Russia raises interest rates to record high of 21 percent


(MENAFN) On Friday, the bank of Russia made a significant adjustment to its monetary policy by raising the policy interest rate by an additional 200 basis points, bringing it to an unprecedented 21 percent. This increase marks the culmination of a series of rate hikes, which began in July 2023 when the rate stood at 8.5 percent and rose consistently to 19 percent by September. Market analysts had anticipated a hike to 20 percent for this latest decision, but the bank opted for an even steeper increase to counter mounting inflationary pressures.

According to the central bank, inflation has been running much higher than initially forecast, prompting this aggressive policy response. Inflation expectations are not only high but also continue to grow, indicating a shift in consumer and business sentiment regarding future price levels. The decision to raise rates reflects the bank’s commitment to stabilizing prices, especially as other measures have proven insufficient in curbing inflation in recent months.

The bank attributed part of the inflation surge to strong domestic demand, which it said is expanding beyond the economy's ability to keep up with supply. This imbalance has fueled price increases, as the availability of goods and services cannot meet the heightened demand. By tightening monetary policy, the bank aims to temper demand, which could ease the pressure on prices in the near term and help restore stability.

Looking ahead, the Bank of Russia projects a gradual reduction in inflation, with the expectation that annual inflation will fall to 4.5–5 percent by 2025 and further ease to around 4 percent in 2026. This medium-term forecast aligns with the bank’s goal of bringing inflation back to its target range, maintaining a stable economic environment. The central bank reiterated its dedication to achieving and sustaining this target level in the years to come, underscoring the need for continued vigilance in its approach to monetary policy.

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