Central Bank of Russia hikes policy rate by 100 bps to 8.5% as expected

The Central Bank of Russia announced on Friday that it raised its policy rate by 100 basis points to 8.5% from 7.5%. This decision came in line with the market expectation.

Key takeaways from policy statement

"If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate increase at its upcoming meetings."

"Key rate decisions will take into account actual and expected inflation movements relative to the target and economic."

"Developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction."

"Based on the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will edge down to 4.0–4.5% by late 2022 and will remain close to 4% further on."

"Inflation is developing above the Bank of Russia’s October forecast."

"The contribution of persistent factors to inflation remains considerable on the back of faster growth in demand relative to output expansion capacity."

"In this environment, given rising inflation expectations, the balance of risks for inflation is markedly tilted to the upside."

"This may bring about a more substantial and prolonged upward deviation of inflation from the target."

Market reaction

The USD/RUB pair showed no immediate reaction to the rate decision and was last seen trading at 73.7805, where it was virtually unchanged on a daily basis.