Russia raises key rate sharply to 8.5%, its highest since 2017

MOSCOW, Dec 17 (Reuters) – Russia’s central bank raised its key interest rate sharply to 8.5% on Friday, increasing the cost of borrowing for the seventh time this year to tame stubbornly high inflation, and did not rule out further rate rises.

The decision to raise the rate by 100 basis points (RUCBIR=ECI) came in line with a Reuters poll of analysts who predicted the hefty increase as inflation hovers near a six-year high and geopolitical risks rattle markets. read more

“If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of (a) further key rate increase at its upcoming meetings,” the central bank said in a statement.

The rouble firmed eased slightly to 73.63 versus the dollar, moving away from levels of around 73.58 seen shortly before the rate hike that took the rate to its highest since September 2017.

The central bank, which targets inflation at 4%, said inflation was at 8.1% as of Dec. 13, but was still on track to return to 4.0-4.5% by the end of 2022.

High inflation dents living standards and has been one of the key concerns among households, prompting President Vladimir Putin to call for pre-emptive measures to put brakes on growing prices. read more

Higher rates help tame inflation by pushing up lending costs and increasing the appeal of bank deposits.

Higher rates are also supportive of the rouble, while expectations that the rate-hiking cycle is close to its peak and will reverse at some point in 2022 could spur inflows of foreign funds into Russian treasury bonds.

Elvira Nabiullina, governor of the central bank, will shed more light on the central bank’s forecasts and monetary policy plans at an online news conference at 1200 GMT.

The next rate-setting meeting is scheduled for Feb. 11, 2022.

Reporting by Andrey Ostroukh, Gabrielle Tétrault-Farber, Alexander Marrow, Elena Fabrichnaya; Editing by Mark Trevelyan

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