He Central Bank of Russiamet in an extraordinary way, has decided to increase the official interest rate by 350 basic points starting this Tuesday, from 8.5% to 12% per year, in order to limit the risks for the price stability.
As reported by the institution in a statement, inflationary pressure “is increasing”, with an annual inflation rate that reached 4.4% on August 7, and with rising current prices.
In fact, during the last three months, the seasonally adjusted average growth of current prices amounted to 7.6% in annualized terms, while core inflation climbed to 7.1%.
“The sustained growth of domestic demand, which exceeds the expansion capacity of production, amplifies the underlying inflationary pressure and affects the dynamics of the ruble exchange rate through the high demand for imports”, explained the Central Bank. Russian.
Consequently, the institution points out, the impact of the ruble’s depreciation on prices “is gaining momentum and inflation expectations are rising.”
The Central Bank of Russia has also warned that if current price growth rates remain at the levels reached, the risk that inflation will deviate upwards from the 4% target set for 2024 is “considerable”.
Thus, the Bank of Russia’s decision to raise the official interest rate is intended to “configure the monetary conditions and the general dynamics of domestic demand necessary for inflation to return to 4% in 2024 and stabilize close to 4 % later”.
The Bank of Russia did not plan to review its monetary policy until September 15, but yesterday it decided to call an urgent meeting for this Tuesday due to the pressure endured by the Russian currency in recent sessions, after the exchange of the dollar and the euro against the ruble has reached its highest since March 2022.
Last week, the Russian central bank announced that from August 10 to December 31, 2023, it will not buy foreign currency on the market in order to reduce volatility in the financial marketswhile the institution will continue with foreign currency sales operations.
In his previous monetary policy meeting, held on July 21, the bank of russia decided to raise the reference interest rate by 100 basis points, up to 8.50% from 7.50%, the level at which the price of money had remained stable since September of last year.
The rise in the interest rate undertaken in July, the first carried out by the institution chaired by Elvira Nabiullina since at the end of February 2022 it raised the rate to 20% from 9.50% after the start of the invasion of Ukraine, sought respond to the depreciation of the ruble and the persistence of the inflation.
The Bank of Russia then left the door open for further interest rate hikes at its upcoming meetings to stabilize inflation near the 4% target for 2024 and beyond.
Looking to the future, the institution has assured this Tuesday that, in its decision-making on the official interest rate, it will take into account the real and expected dynamics of inflation in relation to the objective and the processes of economic transformation, as well as the risks posed by internal and external conditions and the reaction of financial markets.
After the extraordinary call on Tuesday, the institution plans to hold its next rate meeting on September 15.