Russia's key rate could be above 6pc some time next year, says central bank

MOSCOW: Russia's key interest rate could be above 6% some time next year, Central Bank Deputy Governor Alexei Zabotkin said on Wednesday, to help the bank bring inflation back towards the 4% target.

The central bank raised its key interest rate by 50 basis points to 5.5% earlier this month and said more hikes would be needed to rein in inflation, which had accelerated to 6.15% as of June 7.

Higher rates make lending more expensive and increase the appeal of bank deposits, which is designed to keep inflation in check but negatively impacts on economic growth.

Zabotkin said the bank would adjust inflation and growth forecasts at the next rate-setting meeting on July 23.

"At this point in time we can only say that both growth and inflation are probably tracking somewhat higher than the April forecast presumed," he said.

The bank said this month that it expects the economy to return to its pre-crisis level this quarter.

Zabotkin said deviations outside the long-term neutral rate corridor were inevitable in order to bring inflation back to target, implying that raising the key rate above 6% in 2022 was possible.

"The long-term neutral rate is 1-2% in real terms, which with inflation on target means 5-6% in nominal terms," said Zabotkin.

"In a period where inflation, and as a result of that inflation expectations, are significantly higher than the target, the neutral range can be shifted higher than this level in the short-term."