The Russian central bank increased its key rate to 21% in an effort to control inflation that exceeded expectations.

• The Russian central bank increased its key interest rate by 200 basis points to 21% on Friday, due to significantly higher consumer price increases than anticipated and the risk of continued high inflation in the near future.
• The move exceeds the 100 basis-point hike predicted by analysts and raises the institution's benchmark rate to its highest since February 2003, according to Reuters.
• In September, the key rate was increased from 100 basis points to 19%.

The Russian central bank increased its key interest rate by 200 basis points to 21% on Friday, due to significantly higher consumer price increases than anticipated and the risk of continued high inflation in the near future.

In September, the key rate increased by 100 basis points, reaching 19%.

The Friday move of the institution's benchmark rate surpassed the 100 basis-point hike predicted by analysts and reached its highest level since February 2003, according to Reuters. This occurred in February 2022, when Russia's policymakers raised it to 20% to calm local markets following Moscow's invasion of neighboring Ukraine.

The bank indicated a hawkish stance on further policy actions on Friday, stating that it "maintains the possibility of raising the key rate at its upcoming meeting."

The annual seasonally adjusted inflation rate in September was 9.8%, up from 7.5% in August. The forecast now anticipates the print will be between 8.0% and 8.5% by the end of 2024, which is significantly above the July forecast of near 6.5%-7.0%.

"The bank stated that the balance of inflation risks is still significantly tilted to the upside over the medium-term horizon. The key risks are associated with persistently high inflation expectations, the upward deviation of the Russian economy from a balanced growth path, and a deterioration in foreign trade conditions."

In 2025, the bank expects annual inflation to decrease to 4.5-5.0%, and in 2026, it anticipates a further decline to 4.0%.

The U.S. dollar was up 0.36% against the ruble at 12:52 p.m. London time, as Russia's economy has been constrained by depressed global prices for its key oil exports and Western sanctions, which have restricted trade and depleted Moscow's coffers for the war in Ukraine, contributing to declines in the ruble.

The Russian interest rate hikes, occurring amidst the European Central Bank and U.S. Federal Reserve's efforts to loosen monetary policy, have sparked worries about hindering the country's economic expansion.

The World Economic Outlook of October predicts that Russia's inflation will average 7.9% this year, with the country's GDP declining from 3.6% to 1.3% by 2025. This is due to a slowdown in private consumption and investment, as well as reduced labor market tightness and slower wage growth.