Russia struggles to curb inflation, raising key interest rates to 5.5%

The Central Bank of Russia is forecasting a further rise as it raises key interest rates by 50 basis points and Moscow is struggling to curb inflation, which has been at its highest level for almost five years.

Russia’s reference rate was 5.5%, rising three times in a row since March and two times in a row on the same scale.

After the decision was announced, central bank governor Elvira Nabiullina said in a hawkish tone that banks had considered raising one percentage point to attempt a sharp fight. Rising food prices..

“Inflation is becoming more of a concern … Nabiullina is likely to raise rates again in July,” Nabiullina said at a news conference. “Our main goal is to control the pace of price increases as quickly as possible.”

Russia’s annual consumer inflation rate rose to 6% last month. This is the highest level since October 2016, well above the central bank’s target of 4%. This trend is driven by the deregulation of Covid-19, helping the economy recover faster than expected from the effects of the pandemic. Rapid rise At world food and commodity prices.

“A viable alternative is a series of smaller 25bp rate hikes, [the bank’s] The hawk-like message and the apparent underlying inflationary pressures are likely to bring about greater movement, “Citigroup’s Dean of Russian Economics, Ivan Chakarov, wrote in a research note.

In particular, rising food prices are a political issue for Kremlin, a country where 20 million people (1 in 7) live below the poverty line and have less than a generation of memory of rations and hyperinflation.

Moscow has imposed some price caps on major household items and is considering new quotas or additional obligations on food if global prices continue to rise, the State’s Minister of Economy said. Told the Financial Times last week.

President Vladimir Putin said last week that inflation was one of Russia’s “two most urgent problems,” alongside the rise in unemployment since the coronavirus pandemic began.

Nabiullina said on Friday that inflation would probably begin to fall only in the fall.

“The combination of all factors, including the stimulus of monetary and fiscal policy in the great powers, increases the risk of accelerated inflation, not just in our country, but in most other countries at first glance.” She said.

Banks said they expect annual inflation to return to its target “in the second half of 2022” and then “nearly another 4%.”

The ruble fell on Friday and bought Rp71.91 for $ 1 after the announcement by the central bank. The Russian currency has risen 8% since mid-April, surpassing expectations of rising interest rates and rising oil prices, hitting the dollar’s highest in 11 months.

Russia struggles to curb inflation, raising key interest rates to 5.5%

Source link Russia struggles to curb inflation, raising key interest rates to 5.5%

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