By Thomas Grove
MOSCOW--Russia's Central Bank hiked its key interest rate by 25 basis points Friday to 4.50%, citing increasing inflation pressure, market volatility and geopolitical developments.
The move sees Russia, which is facing higher food and energy prices, join other large emerging market economies such as Turkey and Brazil, which have also recently raised rates.
The rise is the first of what analysts and economists expect will be a hiking cycle that could take the key interest rate to 5% or above, analysts and economists say.
February inflation came in above expectations at 5.7% on-year, pushing the indicator further from the bank's target of 4% annual inflation. The bank said pressure was coming from a recovery in demand after the fall in economic activity last year due to the coronavirus pandemic.
"Short-term proinflationary risks are also connected with stronger volatility in global markets, driven by various geopolitical developments, among other factors, which may have an effect on exchange rate and inflation expectations," the bank said in a statement.
"The Bank of Russia holds open the prospect of further increases in the key rate at its upcoming meetings."
The ruble strengthened on the news. The currency had been hit in recent days by the fear of fresh sanctions since U.S. President Biden's threat to make Russia pay for trying to meddle in the 2020 elections, following a U.S. intelligence agency report that accused Russian President Vladimir Putin directly.
"Geopolitical risk has contributed to weakness in the ruble and it is likely to continue to contribute to poor performance of the currency and market at large given recent developments," Vladimir Tikhomirov, Chief Economist at BCS Global Markets, said.
The weaker ruble has likewise exacerbated external inflationary pressures in Russia, forcing food and energy prices up.
Write to Thomas Grove at thomas.grove@wsj.com
(END) Dow Jones Newswires
03-19-21 0716ET
