For the third consecutive meeting, Russia’s central bank has increased its key interest rate, raising it by 100 basis points to 13%.

This move comes as a response to the struggling rouble and persistent inflationary pressures. 

Just a month ago, the bank had urgently raised rates by 350 basis points to 12% as the rouble plummeted below 100 to the dollar, following a call from the Kremlin for tighter monetary policy.

The central bank has indicated that it may consider further rate hikes in upcoming meetings, emphasizing the significant inflation risks that persist. 

According to the bank’s statement, these risks include domestic demand outpacing output expansion and the rouble’s depreciation during the summer months.

This decision aligns with expectations from a Reuters poll. Russia had previously reversed an emergency rate hike to 20% in February 2022, but this year, rates had been lowered to as low as 7.5%. However, due to a sharp weakening of the rouble, inflationary concerns have resurfaced, driven by a tight labor market, strong consumer demand, and a wide budget deficit.

The central bank has revised its year-end inflation forecast to a range of 6.0-7.0%, up from 5.0% to 6.5%, with annual inflation at 5.33% as of September 11, exceeding the 4% target. Capital Economics anticipates that inflation won’t return to the bank’s target of 4% by 2024, expecting additional rate hikes.

The bank has also adjusted its 2023 key rate range forecast to 9.6% to 9.7%  from 7.9% to 8.3% and increased the 2023 current account surplus projection to $45 billion, up from $26 billion.

While the bank maintained its 2023 economic growth forecast at 1.5% to 2.5%, it warned that the economy had completed its recovery phase and that supply-side limitations, particularly the tightening labor market, would restrict further growth.