Russia's central bank has today raised its key interest rate by 100 basis points to 16%, hiking borrowing costs for the fifth meeting in a row under stubborn inflation pressure from widespread labour shortages, high lending and the weak rouble.
The central bank has now raised rates by 850 basis points since July, including an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy.
The bank said pro-inflationary risks over the medium-term horizon remained substantial and warned that stabilising inflation near its 4% target would require high rates for a long time.
Higher-than-expected government spending would also raise inflation risks, it said.
Today's decision was in line with a Reuters poll of analysts.
"We still think more tightening is to come as inflation pressures build further," said Liam Peach, senior emerging markets economist at Capital Economics, who said he expected another hike to 17% next year.
The central bank's tightening cycle began this summer when inflationary pressure from a tight labour market, strong consumer demand and the government's budget deficit was compounded by the falling rouble.
The bank said labour market conditions were the key supply-side constraint on the Russian economy, which it said was still suffering from significant labour shortages, especially in manufacturing.
But economic growth is set to outperform previous forecasts and exceed 3% this year, the bank said, driven by domestic demand propelled by rising lending and wages.
Russia's economic rebound is a welcome boost to President Vladimir Putin as he runs for re-election in March, with numerous economic challenges on his plate. Moscow's success in evading a Western oil price cap makes those challenges far more surmountable.
Russia had gradually reversed an emergency hike to 20% which it made in February 2022 after Moscow sent its troops into Ukraine, prompting sweeping Western sanctions.
It had cut rates to as low as 7.5% earlier this year.
Putin yesterday said annual inflation could approach 8% this year, well above the central bank's 4% target. He even issued a rare apology when a pensioner complained to him about the price of eggs.
The central bank reiterated its expectation that inflation would end the year at the upper end of its 7-7.5% target range.
The first rate-setting meeting of next year for the Russian central bank is scheduled for February 16.
