Russia strives to control inflation and raises key interest rate to 5.5%

The Bank of Russia has raised its main interest rate by 50 basis points as Moscow is struggling to cope Moderate inflation, It has been operating at the highest level for nearly five years.

The second consecutive interest rate hike of 50 basis points brought Russia’s reference interest rate to 5.5%. The central bank said that it may raise interest rates again in the future because “the balance of risks has significantly shifted to support the risk of inflation.”

It said in a statement: “In the context of a full economic recovery, increased inflationary pressures may cause inflation to deviate from the target more significantly and for a longer period of time.” “This makes it necessary to further raise the key interest rate at the upcoming meeting. .”

Driven by the relaxation of Covid-19 restrictions, the annual consumer inflation rate last month rose to 6%, which helped the economy recover from the effects of the pandemic, and grow rapidly In global food and commodity prices. This is the highest level since October 2016 and well above the central bank’s target of 4%.

In a country where 20 million people (or one-seventh) live below the poverty line, rationing and hyperinflation are less than a generation away, rising prices, especially food prices, are a big deal for the Kremlin. political issues.

The country’s economy minister stated that Moscow has imposed some price caps on major household products and that if global prices continue to rise, the country is considering new export quotas or additional tariffs on food. Tell the financial times last week.

Russian President Vladimir Putin said last week that since the beginning of the coronavirus pandemic, inflation has been one of Russia’s “two most pressing issues”, while unemployment has risen.

The central bank said on Friday: “The key interest rate decision will take into account the actual and expected inflation dynamics related to the target and economic development during the forecast period, as well as the risks posed by domestic and foreign conditions and financial market reactions.”

“In view of the monetary policy stance, the annual inflation rate will return to the target of the Russian Central Bank in the second half of 2022 and will be further maintained at a level close to 4%,” it added.

Russia’s tightening cycle started in March, and in April the central bank governor Elvira Nabiullina stated that it may be necessary to “seriously and significantly raise” key interest rates to curb inflation, which is the bank’s main focus.

The ruble rose slightly on Friday, and shortly after the central bank announced the news, one dollar bought Rbs71.58. Due to interest rate hike expectations and stronger oil prices, the Russian currency has risen 8% since mid-April, and the exchange rate against the US dollar has hit a new high in 11 months.

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