Russia's central bank on Friday hiked its key interest rate for the second time this year, saying inflationary risks and external factors justified the rise from 7.50 to 7.75 per cent. The bank increased rates by the same margin in September, the first such move since a currency crisis in 2014. The bank said following its monetary policy meeting that the current interest rate hike "is preventative and aims to reduce remaining inflationary risks".
The bank expects inflation of between 5.0 and 5.5 per cent by the end of next year, with a dip to 4 per cent by 2020, according to a statement. "There is continuing uncertainty around how external events will develop, as well as around the reaction of prices and inflation to the next rise in VAT," the bank said.
VAT is set to rise from 18 to 20 per cent on January 1. Capital Economics analysts said the decision marked a "hawkish turn" that was hard to justify by inflation developments alone. "With oil prices likely to fall further and inflation set to rise, one more interest rate hike is likely in early 2019," the consultancy said in a note.