Russia’s central bank will raise key interest rates by 200 basis points to 18% at a board meeting on July 26 in an effort to curb inflation and cool an overheating economy. Massive state spending, wage growth across sectors, severe labor shortages and continued growth in business and retail lending are the main factors behind inflation, which currently stands at 9.2%, well above the regulator’s 4% target.
Analysts agree that a rate hike is inevitable, with three-quarters of those polled expecting a 200 basis point hike. Only a handful of analysts see a 100 basis point rise as possible.
Opponents of the central bank, including industry lobbyists and bankers, accuse it of stifling economic growth at a time when the economy can grow at a faster rate than the current 5%, fueled by defense-sector spending. The Fed’s rhetoric has become tougher, with its governor, Elvira Nabiullina, saying the board will focus on the size of the rate hike rather than the need for it. The central bank said earlier that tightening monetary policy would last much longer than previously expected in order to curb inflation in a more sustainable way.
Regulators are also expected to review inflation forecasts for this year, currently at 4.3-4.8%. Some analysts pointed out that the inflation rate is currently at a peak of more than 9% and will slow to 7% by the end of the year.
