Russia's Central Bank Raises Rates to 8%

Russia's central bank has unexpectedly raised its key bank interest rate over concerns about inflation and "geopolitical tension".

The bank's board decided to raise the interest rate by 50 basis points, or half a percent, to 8% per year.

Analysts said that they had not expected the move.

The rate hike will come after Western sanctions over the crisis in the Ukraine were boosted.

Domestic stocks and the rouble tumbled earlier this year after sanctions were implemented.

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Russia's economy is more vulnerable to sanctions (or even the mere threat of sanctions) than most still seem to believe.”

Neil Shearing Capital Economics The Central Bank of Russia said on Friday that it will raise the interest rate on Monday to ease inflationary pressure.

"Inflation risks have increased due to a combination of factors, including, inter alia, the aggravation of geopolitical tension and its potential impact on the rouble exchange rate dynamics, as well as potential changes in tax and tariff policy," the bank said.

In June, core inflation grew to 7.5%, well above the bank's forecast of up to 6.5% for the year.

"The main reason for inflation acceleration was the effect of the observed rouble depreciation on prices of a wide range of goods and services," the bank said.