Central Bank of Russia hikes key rate 350 basis points to 12%, in-depth policy signal not given

MOSCOW. Aug 15 (Interfax) - The board of directors at the Central Bank of Russia has decided to raise its key rate 350 basis points effective from August 15 to 12.00% per annum, the regulator said in a statement.

The decision is aimed at limiting price stability risks, it said.

The Central Bank did not give its usual in-depth signal about its monetary policy intentions going forward. It did say the following: "Moving forward, in its key rate decision-making the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as the risks posed by domestic and external conditions and the reaction of financial markets."

The Central Bank said that given the monetary policy stance, annual inflation will return to 4% in 2024.

Analysts differed in their expectations before the decision, saying in forecasts that they thought a rate rise of between 150 and 350 bps to 10%-12% possible.

The Central Bank said inflationary pressure was building and that with current price growth rates staying at the attained levels, the risk of inflation's deviation upwards from the target in 2024 is substantial. "The Bank of Russia's decision is aimed at shaping monetary conditions and overall domestic demand dynamics necessary to bring inflation back to 4% in 2024 and stabilize it close to 4% further on," the regulator said.

Steady growth in domestic demand surpassing the capacity to expand output amplifies the underlying inflationary pressure and has impact on the ruble's exchange rate dynamics through elevated demand for imports, it said. "Consequently, the pass-through of the ruble's depreciation to prices is gaining momentum and inflation expectations are on the rise," it said.

The Central Bank said its next planned rate review meeting was September 15.