The Bank of Russia unexpectedly increased interest rates for the first time since 2018 and warned of further hikes after inflation accelerated faster than expected.
The benchmark rate was raised 25 basis points to 4.5% on Friday. Just three analysts in a Bloomberg survey of 41 economists forecast the move, with the rest expecting no change.
The central bank “holds open the prospect of further increases in the key rate at its upcoming meetings," according to a statement published on its website. Inflation is running above forecast but is expected to return close to the target of 4% in the first half of 2022, it said.
Russia is the third major emerging-market central bank to unexpectedly tighten monetary policy this week, after similar decisions from Brazil and Turkey. The key rate could be raised to 5.5% or higher before the end of this year, particularly if the government goes ahead with plans for additional spending, a person familiar the central bank’s discussions said earlier.
The ruble extended gains after the decision, climbing 0.7% to 73.78 per dollar and paring its weekly decline. That made the currency the third-best performer in emerging markets on Friday. Ten-year bond yields added one basis point to 7.01%, their highest level in a year.
Bank of Russia Governor Elvira Nabiullina will hold an online news briefing at 3 p.m. Moscow time.
Key Insights:
Annual inflation in Russia accelerated to 5.7% in February, the fastest in more than four years and well above target. Food prices in particular have shot up, adding to a decline in living standards during the pandemic.
The threat of new U.S. sanctions clouded the outlook for the ruble this week after President Joe Biden vowed to make the Kremlin “pay a price" for election interference.
The government is weighing additional spending in the first half of the year to help speed up the economic recovery from the pandemic, but it may also propel inflation.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
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