Russia's Central Bank Keeps Key Interest Rate Steady at 21%

Investing.com -- The Bank of Russia maintained its key interest rate at 21% on Friday, despite economists' expectations of an increase to 23%. This decision marks the highest level since the beginning of the full-scale invasion of Ukraine in early 2022.

The central bank made this unexpected move while combating rising inflation due to the reallocation of resources and manpower to support President Vladimir Putin's invasion of Ukraine. The central bank attributed its decision to a faster-than-expected decline in credit demand. Chairwoman Elvira Nabiullina stated, "We are seeing a noticeable slowdown in lending activities."

Despite this, Nabiullina did not rule out the possibility of interest rate hikes in the future, including during the bank's meeting in February, should inflation continue to rise.

Contrary to the slowing price increases and falling interest rates in other parts of the world, inflation in Russia has risen again this year. The government's increased commitment of resources and manpower to the ongoing military operation in Ukraine, which began in February 2022, has contributed to this inflationary trend.

In November, consumer prices were 8.9% higher compared to the same month last year. This represents a significant increase from the previous month and is well above the central bank's target of 4%. Given the government's plans to raise military spending by 2025, it seems unlikely that inflationary pressures will ease in the near future.

Following the first major hike after the onset of the invasion, the central bank had gradually lowered the key interest rate to a low level of 7.5% by mid-2023 as inflation began to cool.