Russia’s central bank raises key interest rate amid weaker rouble

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The third rate hike in two months comes as Russia grapples with higher inflation and a weaker rouble.

Russia’s central bank has raised its key interest rate by 100 basis points to 13 percent, hiking the cost of borrowing for the third time in two months as it grapples with higher inflation and a weaker rouble.

Inflation in Russia accelerated in recent months and has remained stubbornly high, with the central bank failing to meet its target of four percent.

The central bank said on Friday its board of directors decided to increase the key rate from 12 percent to 13 percent.

“Inflationary pressure in the Russian economy remains high,” the bank said in a statement.

The bank also pointed to the “depreciation of the rouble”, which has shed about 30 percent of its value against the US dollar since the start of the year.

“The Bank of Russia will assess the feasibility of further increases of the key rate at its upcoming meetings,” it said.

The central bank adjusted its year-end forecast for inflation to 6.0-7.0 percent from 5.0-6.5 percent. Annual inflation was running at 5.33 percent as of September 11, above the 4 percent target.

Capital Economics said it was not convinced inflation would return to the bank’s 4 percent target in 2024, and expected more rate hikes to come.

“Russia’s central bank is a hawkish institution that takes its commitment to inflation fighting seriously,” Liam Peach, senior emerging markets economist, told Reuters news agency.

“With fiscal policy set to remain loose, the economy likely to continue overheating and inflation pressures to build further, there will be more pressure on the central bank to tighten monetary policy,” he added.

Previous rate hikes

The central bank last hiked its key rate at an emergency meeting in August, a day after the rouble tumbled to a more than 16-month low against the US dollar.

On Tuesday, President Vladimir Putin downplayed the weakening of the currency, which has been weighed down by lower export revenues and higher military spending in the wake of the conflict in Ukraine.

“This issue requires its own painstaking research by the central bank and the Russian government and financial authorities,” he said at the Eastern Economic Forum in Vladivostok.

Russian officials have largely shrugged off the economic effects of Moscow’s dragging offensive in Ukraine, despite an exodus of foreign companies and unprecedented Western sanctions.