Russia holds interest rate at historic high amid inflation fears
The central bank of Russia has decided to keep the main interest rate at 21 percent. This marks the second consecutive decision to maintain rates following an October hike to a record level. The bank warns of ongoing inflationary pressure and has raised inflation forecasts for the coming years.
During Friday's meeting, the Russian central bank kept the main interest rate at 21 percent. This remains the highest level in history, set during the October hike. The bank emphasizes that inflationary pressure is still high, and medium-term inflation risks continue to rise.
The monetary authorities have significantly revised their inflation forecasts. The bank now expects inflation in 2025 to be between 7 and 8 percent, a substantial increase from previous estimates of 4.5 to 5 percent. A return to the 4 percent inflation target is not anticipated until 2026.
The impact of sanctions and war expenditures
Inflation in Russia has been unstable since the invasion of Ukraine began in February 2022. Contributing factors include Western sanctions and measures taken by the authorities to stabilize the economy. Additional inflationary pressure stems from increased arms spending related to military operations.
According to central bank data, the annual inflation rate as of February 10 was 10 percent, following a slight decline between December and January. The bank notes that future decisions on interest rates will depend on the speed and sustainability of inflation's decline.
Market reactions and expert opinions
Sofia Donets, chief economist at T-Investments, indicates that the bank's decision may suggest a greater tolerance for inflation above the 4 percent target this year. However, she does not rule out the possibility of further interest rate hikes. In her view, the central bank is cautious about markets becoming too optimistic regarding long-term rate cuts.
In response to the interest rate decision, the Moscow stock index rose by 0.86 percent. The ruble's exchange rate against the dollar was 91. The next meeting of the Russian central bank on interest rates is scheduled for March 21.
