Russia Raises Rates Amid Standoff With West, Signs of Covid-19 Economic Recovery
April 23 2021 - 9:28AM
Dow Jones News
By Paul Hannon
Russia's central bank raised its key interest rate, a move that
may help support the ruble amid tensions with the West, but also
reflects a recovery that it expects will lift economic output to
its pre-pandemic level by the middle of 2021.
The Bank of Russia raised its main rate to 5% from 4.5%, having
last increased borrowing costs on March 19. Like its peers around
the world, the central bank cut its interest rate sharply during
the early stages of the pandemic, to support the economy.
The bank said Friday that it expected inflation to be higher
than previously anticipated, citing a rebound in demand as Russia's
Covid-19 vaccination program progressed. It also said it may raise
rates further, to bring the inflation rate down to its 4% target,
from 5.8% in March.
"The rapid recovery of demand and elevated inflationary pressure
call for an earlier return to neutral monetary policy," it
said.
The central bank signaled concern about other developments that
could push inflation higher. Its rate move follows the Biden
administration's decision this month to bar U.S. banks and
institutional investors from buying new Russian government
ruble-denominated bonds at auction from June 14. This was presented
as retaliation for Moscow's alleged interference in U.S. elections
and widespread hacking campaign.
"Short-term pre inflationary risks are also associated with the
stronger volatility in global markets, caused in part by various
geopolitical developments," the central bank said.
Earlier prohibitions targeting Russia's sovereign debt shook its
markets and added to its economic woes. While investors' response
to the latest sanctions was more subdued, a weaker ruble would push
prices of imported goods and services higher.
The central bank's move also comes amid worries that strong
growth in the U.S. will push interest rates there higher, leading
to destabilizing outflows of capital from developing economies.
Raising interest rates to counter that and other inflation
threats risks weakening the economic recovery from the pandemic,
presenting central banks in countries such as Russia with a tricky
dilemma.
Nonetheless, Russia's central bank appears to have the backing
of President Vladimir Putin.
"The government and the central bank must continue to pursue a
responsible financial policy," Mr. Putin said Wednesday. "Ensuring
macroeconomic stability and containing inflation within set
parameters is an extremely important task."
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
April 23, 2021 09:13 ET (13:13 GMT)
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