Russian central bank hikes rates to 13%, issues hawkish guidance

Russia’s central bank raised its key interest rate by 100 basis points to 13% on Friday, jacking up the cost of borrowing for the third meeting in succession in response to a weak rouble and other persistent inflationary pressures.

A month ago, responding to the rouble tumbling past 100 to the dollar and a public call from the Kremlin for tighter monetary policy, the bank had hiked rates by 350 basis points to 12% at an emergency meeting.

On Friday, it gave hawkish guidance that it would consider further rate increases at upcoming meetings and said that inflationary risks remained significant.

“Significant proinflationary risks have crystallised, namely domestic demand growth outpacing output expansion capacity and the depreciation of the rouble in the summer months,” the bank said in a statement.

The decision to raise rates was in line with a Reuters poll.

Russia has gradually reversed an emergency hike to 20% which it made in February 2022 after Moscow despatched troops to Ukraine and the West imposed sweeping sanctions, bringing rates to as low as 7.5% this year.

But as a sharp weakening of the rouble fuelled inflationary risks from a tight labour market, strong consumer demand and Moscow’s wide budget deficit, the central bank has been forced into a tightening cycle that began in late July.

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

The bank kept its 2023 economic growth forecast at 1.5-2.5%, but warned that the economy had now completed its recovery phase and that supply-side constraints, namely the tightening labour market, would limit further growth.

Central Bank Governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.

The next rate-setting meeting is scheduled for Oct. 27.