The Bank of Russia has raised the key rate for the seventh time in a row, this time by 1 percentage point, to 8.5% per annum, follows from the press release of the regulator following the meeting of the board of directors. Thus, the key rate peaked since the fall of 2017.

“The Board of Directors of the Bank of Russia decided on December 17, 2021 to raise the key rate by 100 bp, to 8.50% per annum. Inflation is higher than the October forecast of the Bank of Russia. biased towards pro-inflationary. This may lead to a more significant and prolonged deviation of inflation upwards from the target. The monetary policy pursued by the Bank of Russia is aimed at limiting this risk and returning inflation to 4%, “the message says.

Inflation risks

The Central Bank points out that the balance of risks is significantly shifted towards proinflationary ones, and the effect of proinflationary factors can be exacerbated by increased inflationary expectations and accompanying spillover effects.

“Slowdown in inflation may be hampered by persisting difficulties in production and supply chains, a shortage of labor resources, as well as structural changes in the labor market as a result of the impact of the pandemic,” the regulator notes.

The Central Bank also noted that inflation is developing above the October forecast of the Bank of Russia.

Signal to the market

The Central Bank notes in its press release that it admits the possibility of a further increase in the key rate at the next meetings.

“If the situation develops in accordance with the baseline forecast, the Bank of Russia admits the possibility of a further increase in the key rate at the next meetings. Decisions on the key rate will be made taking into account the actual and expected dynamics of inflation in relation to the target, and external conditions and the reaction of financial markets to them “, – indicates the Central Bank.