FILE PHOTO: A Russian state flag flies over the Central Bank headquarters in Moscow, Russia March 29, 2021. REUTERS/Maxim Shemetov

March 18, 2022

(Reuters) -Russia’s central bank kept its key interest rate at 20% on Friday following an emergency rate hike in late February and warned of an imminent spike in inflation and a looming economic contraction.

The central bank board met on rates after raising the key rate from 9.5% on Feb. 28 to 20% to support financial stability when the rouble crashed to record lows as the West imposed sanctions against Russia over its actions in Ukraine.

The rate decision was in line with a consensus forecast of analysts polled by Reuters.

On Friday, the central bank said in a statement Russia was entering “a temporary but inevitable period of increased inflation”, while flash indicators suggested a deterioration in the economy that will shrink in the coming quarters.

The central bank did not give inflation or economic forecasts for this year, saying it aimed to return inflation to its 4% target in 2024.

Economists polled by the central bank last week expected the economy to shrink 8% and inflation to reach 20% in 2022.

Annual inflation in Russia accelerated to 12.54% as of March 11, its highest since late 2015, with the weakening rouble sending prices soaring amid unprecedented Western sanctions.

High inflation dents living standards and has been one of the key concerns among households for years. Higher rates help tame inflation by pushing up lending costs and increasing the appeal of bank deposits.

The rouble weakened after the rate decision to 104.35 against the dollar from levels around 103 seen shortly before the announcement.

Elvira Nabiullina, governor of the central bank, will shed more light on the central bank’s forecasts and monetary policy plans at an online briefing at 1400 GMT.    The next rate-setting meeting is scheduled for April 29.

VTB Capital analysts said the central bank is expected to keep rates unchanged until mid-2022 and lower them to 16% by year-end.

(Reporting by Reuters)

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