Russia raises the key interest rate to 5.5% while struggling to control inflation

Russia’s central bank has raised its key interest rate by 50 basis points while Moscow struggles to low inflation, which has been running at its highest level in almost five years.

The second consecutive growth of 50 bp has brought Russia’s benchmark rate to 5.5 per cent, and the central bank said it will likely raise rates again in the future as “the risk balance has changed significantly towards those who are pro-inflationists ”.

“Increased inflationary pressure in the context of the full economic recovery may lead to a more substantial and prolonged deviation of inflation from the target,” it said in a statement. “This creates the need to further increase the key rate at future meetings.”

Annual consumer inflation rose to 6 percent last month, driven by the easing of Covid-19 restrictions that help the economy recover from the impact of the pandemic, and a strong ascent in world food and commodity prices. It is the highest level since October 2016, and well above the central bank’s target of 4 percent.

Rising prices, particularly food, are a political problem for the Kremlin in a country where 20 million people – or one in seven – live below the poverty line, and memories of reasoning and of hyperinflation are less than a generation.

Moscow, which has imposed some price caps on key household products, has considered new export quotas or additional duties on food products 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 Russia’s “two most pressing problems,” along with rising unemployment since the coronavirus pandemic began.

“The main rate decisions will take into account the current and projected inflation dynamics in relation to the projected objective and economic developments over the forecast horizon, as well as the risks posed by national and external conditions and the reaction of the financial markets, ”the central bank said Friday.

“In view of the monetary policy stance, annual inflation will return to the Bank of Russia’s target in the second half of 2022 and will remain close to 4 percent later,” he added.

Russia’s strengthening cycle began in March, and in April central bank governor Elvira Nabiullina said a “serious and significant increase” in the key rate could be justified to tame inflation, which is the focus. primary of the bank.

The ruble was trading marginally higher on Friday, with a dollar buying Rbs71.58 shortly after the central bank’s announcement. The Russian currency has grown 8 percent since mid-April on forecasts of higher interest rates and higher oil prices, and is at an 11-month high against the dollar.

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