Russian central bank keeps key rate unchanged at 16%; inflation at 8.17%

Russia's central bank held its key interest rate at 16% for the fourth meeting running on Friday and reiterated hawkish guidance that rates will have to stay high for a long time to bring inflation back to the bank's 4% target.

The decision was in line with a Reuters poll of economists, which had forecast a hold even as an inflation slowdown has stalled. A quarter of analysts polled had expected rates to be hiked to 17%.
 

"The Bank of Russia holds open the prospect of increasing the key rate at its upcoming meeting," the bank said in a statement.
 

"Furthermore, returning inflation to the target will require a significantly longer period of maintaining tight monetary conditions in the economy than was forecast in April." Governor Elvira Nabiullina was due to address the media at 1400 GMT, slightly later than usual so as to avoid clashing with President Vladimir Putin, who is scheduled to speak at Russia's premier investment forum in St Petersburg.

Friday's rate decision was the first this year to generate real suspense, with top bankers weighing in beforehand with different forecasts and analysts unsure as to whether the central bank would raise rates now or at its next meeting on July 26.
 

The bank said inflation risks had become even more pro-inflationary in the medium-term, exacerbated by changes in terms of trade, persistently high inflation expectations and an upward deviation of the Russian economy from a path of balanced growth.

The Bank of Russia raised rates by 850 basis points in the second half of 2023, including an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy.
 

Inflation, the bank's main area of concern, stood at 7.4% in 2023, compared with 11.9% in 2022. It is currently running at 8.17% and economists expect it to remain well above the central bank's 4% target this year.