(Bloomberg) -- The Bank of Russia surprised the majority of analysts by delivering a smaller-than-expected increase in its key interest rate after inflation hit a five-year high last month.
The benchmark rate was raised by 25 basis points to 6.75% on Friday, the Bank of Russia said in a statement. The move followed the biggest rate increase since 2014 -- a full percentage point -- in July. Sixteen economists in a Bloomberg survey of 44 correctly forecast Friday’s move, while 27 expected a bigger move and one expected no change.
Bank of Russia Governor Elvira Nabiullina is easing the pace of monetary tightening as the economic recovery is losing steam. The central bank has now boosted rates by a total of 250 basis points this year in an effort to contain inflation, which is running well above target.
Investor expectations of a large hike had sapped demand at Wednesday’s weekly government-bond auction.
Nabiullina will hold an online news briefing at 3 p.m. Moscow time. Follow our live blog here.
Key Insights:
- Inflation is set to peak in September at 6.9%, before slowing to about 6% by the end of the year, still above the central bank’s 4% target, according to Goldman Sachs Group Inc. analyst Clemens Grafe.
- President Vladimir Putin has added to risks of further price pressures with nearly 700 billion rubles ($9.6 billion) in new social spending as the nation is heading into parliamentary elections next week. Officials say the largesse won’t fuel inflation this year.
- The economic recovery had slowed a bit, with retail sales, construction and cargo shipments showing lower growth in August after a period of sharp expansion.
- Along with Brazil, Russia has been one of the most aggressive in hiking rates among its emerging-market peers as they all suffer from rising prices. Turkey has taken a more cautious approach, even as price growth has accelerated sharply.
©2021 Bloomberg L.P.
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