Russian Interest Rate Hike – Currency Thoughts
Russian Interest Rate Hike
October 25, 2024
Officials at the Central Bank of Russia had been thought likely to hike their policy interest rate by another percentage point at this month’s scheduled review but surprised analysts by increasing such to 21.0% from 19.0%. The new rate is its highest in just over two decades and five full percentage points above the mid-2024 level. The rate was kept steady in the first half of this year after being raised by 850 basis points of increase undertaken during the second half of 2023, and at 21%, the new rate even exceeds the 20% peak held for about two months in the earliest days after Putin invaded Ukraine at the end of February 2022. CPI inflation of 8.6% last month was more than double the bank’s target of 4%. A statement released by the central bank today revises projected inflation upward, observes upwardly skewed price risks and rising inflation expectations amid a shortage of available workers to balance supply with domestic demand. Market participants are told to expect more rate hikes:
Further tightening of monetary policy is required to ensure the return of inflation to the target and reduce inflation expectations. The Bank of Russia holds open the prospect of increasing the key rate at its upcoming meeting.
In a separate and somewhat countervailing move by Putin’s government, Russian capital controls were loosened further.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Russia
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