Russian central bank increases main rate to historic level

(MENAFN) The Bank of Russia has raised its key interest rate by 200 basis points to a historic high of 21%, citing ongoing inflationary pressures and an economy struggling to meet domestic demand. The central bank's move follows a sharp rise in consumer prices, which surged 9.8% year-on-year in September, significantly exceeding its previous inflation forecast of 6.5-7.0% for 2024. Inflation is now expected to reach 8.0–8.5% this year, more than double the government’s target of 4%.

The central bank also pointed to increased government spending and a widening budget deficit as key drivers of inflation. To address this, the regulator stated that further monetary tightening is necessary to bring inflation in line with its 2025 target of 4.5-5.0%, with a long-term goal of hitting 4% by 2026.

This marks the latest in a series of rate hikes, following previous increases in July and September. The current interest rate is now higher than the 20% level set in 2022, after the escalation of the Ukraine conflict and the imposition of Western sanctions. Bank of Russia Governor Elvira Nabiullina suggested that another rate hike of 200 basis points may occur at the next meeting in December.

The central bank's actions come as Russia's economy faces complex challenges, including inflation and a strained fiscal situation, but the country’s GDP is still ranked as the world’s fourth-largest by purchasing power parity, according to the International Monetary Fund (IMF).

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