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Business & Finance

Russia seen raising rates again on Friday as inflation remains high

  • Central bank seen making 25 or 50 bps hike.
  • Bank of Russia to deliver decision at 1030 GMT on Friday.
07 Jun 2021

MOSCOW: Russia's central bank will raise its key interest rate on Friday for the third time in a row, by 25 or even 50 basis points as inflation remains well above target and shows little signs of slowing, a Reuters poll suggested on Monday.

The central bank this year announced its plan to return to a neutral policy rate of 5%-6% after slashing the rate to a record low of 4.25% in 2020 to prop up the economy amid the COVID-19 pandemic and a drop in oil prices.

Nineteen of the 28 analysts and economists polled said the central bank would raise the key rate by 25 basis points to 5.25%.

Inflation, the bank's main area of responsibility, accelerated again in May to 5.7%-5.9% after slowing to 5.5% in April and is on track to speed up further in the coming months, central bank analysts said.

The central bank targets annual consumer inflation of 4%. It overshot the target in late 2020 amid global inflation and as the weaker rouble filtered into prices in Russia.

Rate hikes became more necessary recently when the rouble took a hit from a new wave of sanctions, while the pace of economic growth exceeded expectations despite more expensive lending.

State spending may also spur already high annual inflation, senior Russian officials said at the St Petersburg International Economic Forum (SPIEF) last week.

Central Bank Governor Elvira Nabiullina said at the forum inflationary expectations were at a four-year high. She said it was too early to say what step in raising rates the board would approve on June 11, ruling out the possibility of a rate cut.

Nine experts polled by Reuters said the central bank will raise rates by 50 basis points, as it did in April.

"We think the key rate will be raised by 50 basis points on Friday, June 11. Another 50-basis-point increase may follow in July, after which the rate will stay unchanged by the year-end," said Igor Rapokhin, chief debt strategist at SberbCIB Investment Research.

The rate decision is due at 1030 GMT on Friday, followed by an online media conference with Nabiullina.

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