Russia's Central Bank Maintains Benchmark Interest Rate at 21%

Investing.com -- The Central Bank of Russia announced on Friday that it will keep its key interest rates unchanged at 21%. This move was unexpected, as the market widely anticipated an additional 200 basis points increase. The bank justified its decision by indicating improved monetary conditions that could help control high inflation rates.

In the bank's statement, it was noted that monetary conditions had tightened more than anticipated in the decision made in October regarding the key interest rate. Factors contributing to this tightening were defined as being "independent" of the bank's monetary policy.

The bank stated that significant increases in borrowing rates and the slowdown in credit activity have created the necessary conditions for a renewed disinflation process. This situation could lead to a return to the targeted inflation levels despite the current high price increases and strong domestic demand.

The bank had raised interest rates in October to combat inflation exacerbated by the financial burden of Russia's military intervention in Ukraine and the sanctions imposed by Western countries on key commodity exports.

The central bank indicated that it will assess the need for a key interest rate increase at its next meeting in February. The bank currently projects that annual inflation will decline to 4% by 2026 and will remain at that level in the foreseeable future.

The current consumer price index in Russia is more than double this target. As of December 16, annual inflation was reported at 9.5%, with pressures particularly continuing in the household and business sectors. The consumer price index rose to 8.9% year-on-year in November, compared to 8.5% in October. This increase was largely driven by rising food costs, with prices for milk and dairy products experiencing significant increases this year.