A Second Interest Rate Hike in Russia, and It’s Bigger than Forecast

April 23, 2021

The Central Bank of Russia, by contrast, today raised its interest rate benchmark by more than expected despite increasing voter dissatisfaction with President Putin. An initial 25-basis point rate increase on March 19 had constituted a trend reversal. By last July, the rate had been lowered last year by a total of 200 basis points to 4.25%. In announcing a second consecutive rate hike today, this time of 50 basis points to 5.0%, the Board of Directors responded to the rise of CPI inflation to a 52-month high of 5.8% (versus a target of 4%) and to the first on-year advance of monthly GDP (+0.5% in March compared to -2.5% in February) in a year. In a released statement, officials observe, “The recovery of demand is becoming increasingly steady and in certain sectors exceeds their output expansion capacity. In this context, the balance of risks is shifted towards proinflationary ones.” More hikes seems probable: “The Bank of Russia will consider the necessity of further increases in the key rate at its upcoming meetings.”

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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