Russia Interest Rate Rise First Since 2014

Russia’s central bank unexpectedly raised its key interest rate by a quarter-point on Friday, citing a significant increase in “pro-inflationary risks” due to highly uncertain external conditions, RTTnews reported. The board of directors decided to raise the key rate by 0.25 percentage points to 7.50% per annum, the Bank of Russia said in a statement. Economists had expected the bank to hold the rate steady. The central bank forecast annual inflation to be 5-5.5% in 2019 and return to 4% in 2020. Growth forecast for this year was left unchanged at 1.5-2%. The projections for next year was updated to 1.2-1.7%, considering the upcoming VAT increase and a boost in government spending. The bank expects the suspension of foreign currency purchases in the domestic market to help to curtail the exchange rate volatility and its influence on inflation, over the next few quarters. The central bank said in a statement that it felt to act after inflation rose to 3.1% in August, above its predictions.  Another factor affecting the decision was higher payouts on ruble-denominated government bonds, after foreigners were worried about US sanctions sold them off en masse, the central bank said.