(Bloomberg) -- The Bank of Russia kept its benchmark interest rate unchanged at a third consecutive policy meeting and warned growing risks of higher inflation may limit the outlook for further monetary easing.

The key rate was kept at 4.25%, the lowest level on record, after 200 basis points of cuts earlier this year. All but four of the 44 economists polled in a Bloomberg survey forecast the move, with the rest expecting a small reduction.

“One-off proinflationary factors are exerting more significant and prolonged upward influence on prices,” the Bank of Russia said in its statement. The central bank “will assess the subsequent developments and the existence of a potential for additional key rate reduction.”

The central bank paused its monetary easing cycle in September as a slump in the ruble started to feed through to inflation, but left the door open to more cuts. Inflation accelerated to 4.7% as of Dec. 14 and may quicken to as much as 4.9% by year end, the central bank estimated.

Governor Elvira Nabiullina will hold a news briefing at 3pm in Moscow on Friday.

Key Insights

  • The central bank could reduce the benchmark below 4% if conditions change substantially, Nabiullina had said in an interview last week. Bringing the rate to such a low level “isn’t the base case,” she added
  • Analysts at the International Monetary Fund said last month Russia should keep cutting to support the economy. They warned that inflation is likely to fall back below the central bank’s 4% target and remain there for a long time.
  • Inflation has become a political issue, with President Vladimir Putin last week ordering the government to take urgent measures to reduce prices of key staples.
  • After contracting 4% in 2020, the economy may expand 2.6% next year unless the coronavirus cases continue to rise into the second half of the year, according to the World Bank.

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