Russian bank officials move to raise interest rates

Russia's central bank has unexpectedly raised its key bank interest rate over concerns about inflation and "geopolitical tension." The bank's board decided to raise the interest rate by 50 basis points, or half a percent, to 8% per year.

Analysts said that they had not expected the move. The rate hike will come after Western sanctions over the crisis in the Ukraine were boosted. Domestic stocks and the ruble tumbled earlier this year after sanctions were implemented.

The Central Bank of Russia said on Friday that it would raise the interest rate on Monday to ease inflationary pressure. "Inflation risks have increased due to a combination of factors, including, inter alia, the aggravation of geopolitical tension and its potential impact on the ruble exchange rate dynamics, as well as potential changes in tax and tariff policy," the bank said. In June, core inflation grew to 7.5%, well above the bank's forecast of up to 6.5% for the year.

"The main reason for inflation acceleration was the effect of the observed ruble depreciation on prices of a wide range of goods and services," the bank said.

The "consumer price growth rate" increased to 7.8% in June. The bank said that its rate hike was to try to bring the rate down to 4%. Monetary conditions have been tightening since March due to "geopolitical factors," the bank said.

Research firm Capital Economics said that the rate rise had taken analysts by surprise, and could be a pre-emptive move to try to limit the amount of cash leaving Russia ahead of any new sanctions by the US and Europe. Should conflict escalate in Ukraine, the key interest rate may have to rise to 10% or more.

Park Sae-jin swatchsjp@ajunews.com

Russian bank officials move to raise interest rates

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