MOSCOW: Russia's central bank unexpectedly raised its main interest rate by a half point to 8.0 percent on Friday, 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 news agency had expected the Bank of Russia to hold its main rate steady as last week data showed that annual inflation had slowed by a tenth of a point to 7.5 percent.
Although inflation dipped in July, the central bank noted the drop was smaller than expected.
The Bank of Russia said the decision aimed to "set conditions for a decline in annual consumer price growth rates to 6.0-6.5 percent by the end of 2014 and to the target level of 4.0 percent in the medium term.
The central bank also said that its estimates show the Russian economy's growth rate to have been "close to zero" in the second quarter.
Russian officials said earlier this week that they expected that the Russian economy, which contracted by 0.3 percent in the first quarter, would dodge entering a recession by posting flat growth.
They said the government was likely to hike its annual growth forecast from the current 0.5 percent to around 1.0 percent.
However the Bank of Russia noted that "external political uncertainty has a negative impact on economic activity."
Although Western sanctions have so far been limited, analysts expect the United States and European Union to soon implement broader sector-wide measures.
Even the targeted sanctions implemented so far have hit business sentiment, and along with general uncertainty have crimped foreign and domestic investment.
"Investment demand remains weak amid low business confidence, limited access to long-term financing in both international and domestic markets, and declining profits in the real sector," said the Bank of Russia.
Comments
Comments are closed.