Russia Delivers Fifth Rate Hike in a Row, Leaves Room for More

(Bloomberg) --

The Bank of Russia delivered a smaller-than-expected increase in its key interest rate, while leaving the door open to further tightening after inflation hit a five-year high last month.  

The benchmark rate was raised by 25 basis points to 6.75% on Friday, the Bank of Russia said in a statement. The move followed the biggest rate increase since 2014 -- a full percentage point -- in July. Sixteen economists in a Bloomberg survey of 44 correctly forecast Friday’s move, while 27 expected a bigger move and one expected no change.

“Given high inflation expectations, the balance of risks for inflation is tilted to the upside,” the central bank said in its statement. “The Bank of Russia holds open the prospect of further key rate rises at its upcoming meetings.”

Bank of Russia Governor Elvira Nabiullina is easing the pace of monetary tightening as the economic recovery is losing steam. The central bank has now boosted rates by a total of 250 basis points this year in an effort to contain inflation, which is running well above target. 

One of the most aggressive tightening paths in emerging markets has so far failed to rein in price growth, while data for August suggest Russia’s economic recovery may be faltering. Parliamentary elections next week are also complicating the picture, with President Vladimir Putin’s pledge of nearly 700 billion rubles ($9.6 billion) in new social spending adding to potential price pressures.

Ten-year bond yields trimmed their increase, trading up two basis points at 7.04%. The ruble kept an advance of 0.2% against the dollar, set for a third day of gains as crude oil rose and most emerging-market currencies advanced.

Inflation is set to accelerate further and peak in September at 6.9%, before slowing to about 6% by the end of the year, still well above the central bank’s 4% target, according to Goldman Sachs Group Inc. analyst Clemens Grafe.

Nabiullina will hold an online news briefing at 3 p.m. Moscow time. Follow our live blog here.

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