Russia C.Bank Raises Rate, Plans To Continue FX Purchases

By Mubasher

Russian Central Bank raised its benchmark interest rate on Friday, in response to rising inflation.

Moreover, the decision came due to the potentially growing pressure on the rouble (RUB) after it announced purchases of foreign currency for state reserves.

The central bank raised its key policy rate to 7.75%, in the second hike this year.

The majority of analysts surveyed by Thomson Reuters expected a hold, whereas a significant number predicted a hike.

“The decision taken is proactive in nature and is aimed at limiting inflation risks that remain elevated, especially over the short-term horizon,” the central bank said.

Following a plunge in the Russian currency, the bank had to reverse a monetary easing cycle in September, when it decided to increase the rates for the first time since 2014.

Inflation was gaining more momentum than expected, the central bank said.

It could surpass the bank’s 4% target already this year, on weakening rouble and an expected value-added tax hike from next year.

However, financial market conditions have stabilised recently, allowing regular foreign currency purchases to continue from 15 January, the bank said.

Inflation is set to reach a peak in the first half of next year, and decelerate to a range from 5% to 5.5% by the end of the year, the central bank predicted.

This article provided by NewsEdge.