Russia raises key interest rates to 5.5% as it struggles to contain inflation

Russia’s central bank has raised its key interest rate by 50 basis points as Moscow struggles Mild inflation, which has been operating at its highest level for almost five years.

For the second time in a row, 50 bp raised Russia’s record interest rate to 5.5 percent, the central bank said, adding that it was likely to raise it again in the future as “the risk balance has shifted significantly to inflation.”

“Increasing inflationary pressures in the context of the end of the economic recovery may lead to a more significant ‘long-term’ deviation of inflation above the target,” the statement said. “This raises the need to further raise the key interest rate in the coming meetings.”

Last month, annual consumer inflation rose to տոկոս 6% due to the easing of Covid-19 restrictions, which helps the economy recover from the effects of the epidemic և sharp rise at world prices for food and goods. This is the highest level since October 2016, well above the central bank’s 4% target.

Rising prices, particularly for food, are a political issue for the Kremlin in a country where 20 million people, or one-seventh, live below the poverty line, and memories of rationalization and hyperinflation are less than a generation old.

Moscow, which has imposed some price limits on basic household goods, is considering new export quotas or additional food tariffs if world prices continue to rise, the country’s economy minister said. said the Financial Times last week.

President Vladimir Putin said last week that inflation was “one of the two most pressing issues in Russia”, along with rising unemployment since the onset of the coronavirus epidemic.

“The key interest rate decisions will take into account the actual, expected dynamics of inflation in relation to the targeted economic developments over the forecast horizon, as well as internal and external risks and the reaction of financial markets,” the Central Bank said on Friday.

“Taking into account the position of the monetary policy, the annual inflation will return to the target of the Bank of Russia in the second half of 2022, in the future it will remain about 4%,” he added.

Russia’s tightening cycle began in March, and in April, Central Bank Governor Elvira Nabiulina said a “significant, substantial rise” in the key interest rate could be guaranteed to ease inflation, which is the bank’s main goal.

The ruble traded slightly higher on Friday, buying the dollar’s Rbs71.58 shortly after the central bank’s announcement. Russia’s currency has risen 8 percent since mid-April amid rising exchange rates, with stronger oil prices hitting a 11-month high against the dollar.

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