Russia Raises Interest Rate to Record 21%

The Russian Central Bank has raised its key interest rate by 200 basis points to a record 21% to combat soaring inflation, which has reached 8.63% as of September 2024. This rate is the highest since 1991 and reflects a significant tightening of monetary policy amid concerns that domestic demand is outpacing the economy's capacity to supply goods and services. The Central Bank acknowledged that additional budget expenditures are contributing to inflationary pressures and hinted that further rate increases may be on the horizon. Analysts had expected a smaller increase, leading to market volatility, with the Moscow Exchange index and RTS index both declining following the announcement. The IMF has recently revised its economic growth forecast for Russia, indicating ongoing challenges in the labor market and wage growth. The bank aims to stabilize inflation to meet its target of 4% by 2026, despite current inflation expectations being considerably higher than earlier forecasts.