The Russian central bank raised its main interest rate by 0.25 points to 8.25% with effect from today to combat strong inflationary pressures which endanger a fragile recovery.
The increase in the refinancing rate, announced today, is the second such tightening in the current cycle after the central bank in February raised its rates for the first time in more than two years.
The bank said that inflationary pressure in Russia remained 'considerable' with inflation this year up to April 25 reaching 9.6% from the same time the year earlier.
'The decision has been taken due to the continued high level of inflation expectations, higher than predicted inflation forecasts and also taking into account the affect the situation on global markets can have on Russia,' it said.
Russia is emerging from the economic crisis that pushed it into recession two years ago but economists are concerned that persistently high inflation partly linked to a devastating heatwave last year could hamper the recovery.
The bank said Russia's industrial production rose in March from February but its annual growth rate was down slightly on a year-on-year basis. While unemployment was falling, investment dynamics remained weak.
It vowed that when considering further rate decisions the bank would take into account the tricky balance between keeping down inflation and also helping the economic recovery.
The Russian government has in the last years worked hard to bring down the sky-high inflation which dogged the country after the collapse of the Soviet Union. But inflation worries have returned in the last months after a summer heatwave and fires destroyed over a quarter of the harvest, creating price pressures as the supply of basic food items on shop shelves fell.
The Russian economic development ministry has forecast that inflation will be 7-7.5% in 2011 and Prime Minister Vladimir Putin this month said the government expects the figure to be no higher than 6.5-7.5%. But most analysts believe that the figure will overshoot this estimate, unless this year's harvest surprises to the upside.
Meanwhile, the recovery remains fragile with Russia still far off the stellar growth rates it saw before the 2008 economic crisis. Putin has said Russia is expecting growth of 4.2% in 2011 but economists have repeatedly warned the country risks becoming stuck with mediocre growth rates unless it implements much needed reform.
