Financial News: Russia Central Bank Hikes Rate By 200 Bps

Russia Central Bank Hikes Rate By 200 Bps

07/26/2024 - 08:27:00 (RTTNews)

(RTTNews) - Russia's central bank raised its benchmark rate by 200 basis points on Friday amid rising risks to inflation and slower domestic demand, and also kept the door open for further tightening.

The board of directors, led by Governor Elvira Nabiullina, decided to lift the key rate to 18.00 percent from 16.00 percent. This was the first hike so far this year. Growth in domestic demand is still outstripping the capabilities to expand the supply of goods and services. Monetary policy needs to be tightened further to bring inflation down, the bank noted.

The bank said it will consider the necessity of further key rate increase at its upcoming meetings.

Inflation forecast for 2024 was substantially raised to 6.5-7.0 percent. Given the monetary policy stance, annual inflation will fall to 4.0-4.5 percent in 2025 and stay close to 4 percent further on, the bank said.

The bank observed that the balance of inflation risks is still tilted to the upside. Disinflationary risks are primarily related to a faster slowdown in domestic demand growth than estimated, the bank said.

Capital Economics' economist Nicholas Farr said the interest rates will be left on hold over the rest of this year. However, the risks are clearly skewed towards higher inflation and interest rates given the tightness in the labor market and large military spending supporting activity.

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