Russia raises main interest rate over Ukraine tensions

Friday 25 July 2014 11.48
Russia's central bank raised its main interest rate to 8%
Russia's central bank raised its main interest rate to 8%

Russia's central bank unexpectedly raised its main interest rate by a half point to 8%, warning that geopolitical tensions were increasing inflationary risks.

"At the same time, 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," the Bank of Russia said.

Its statement was an apparent reference to the crisis in Ukraine and Western sanctions against Russia.

The hike was the third since March as the central bank began to tighten monetary policy when the Russian economy was buffeted by the uncertainty generated by the Ukraine crisis and Western sanctions.

"If high inflation risks persist, the Bank of Russia will continue raising the key rate," it added.

Analysts polled by Interfax-AFI news agency had expected the Bank of Russia to hold its main rate steady as last week data showed that annual inflation had slowed to by a tenth of a point to 7.5%.

Although inflation dipped in July, the central bank noted it was smaller than expected. 

Keywords: bank of russia