Russia's Central Bank raises key rate first time since December 2018

Russia's Central Bank raises key rate first time since December 2018

The Bank of Russia raised the key rate for the first time since December 2018 - by 0.25 percentage points to 4.5% per annum and said it could be raised again at following meetings, the regulator said on Friday.

"On 19 March 2021, the Bank of Russia Board of Directors decided to increase the key rate by 25 b.p. to 4.50% per annum. In the first quarter, the rate of consumer price growth has been higher than the Bank of Russia’s forecast. Domestic demand is recovering more steadily and faster than expected, outstripping the pace of output growth in a number of sectors," the bank said.

The expectations with regard to external demand are also improving on the back of additional fiscal support measures in certain countries and accelerating vaccination paces of the population. Inflation expectations of households and businesses remain elevated. The balance of risks has shifted towards proinflationary ones," the regulator added.

At the same time, the Bank of Russia allowed the possibility of a further increase in the key rate at the next meetings.

“Short-term pro-inflationary risks are also connected with stronger volatility in global markets, driven by various geopolitical developments, among other factors, which may have an effect on exchange rate and inflation expectations,” the central bank said.

The central bank said that inflation, its main area of responsibility, will return to its 4% target only in the first half of 2022, later than previously expected.

Annual inflation was at 5.8% as of March 15 but is seen slowing soon, the bank said.

The rouble extended gains after the rate move, trading at 73.82 against the U.S. dollar versus levels of around 73.98 seen before the announcement.

The next rate-setting meeting is scheduled for April 23.

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