Russian central bank holds key rate at two-decade high

Russia’s central bank kept its key rate at a two-decade high of 21 per cent on Friday and warned it could raise borrowing costs further as it battles rampant inflation.

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Prices have been rising quickly across the Russian economy for months, pushed up by massive government spending on the Ukraine conflict and deep labour shortages.

Annual inflation shot above 10 per cent last month for the first time in two years, with price increases forecast to average between seven to eight per cent this year.

“Current inflationary pressures have eased but remain high,” the central bank said in a statement announcing the decision to leave rates unchanged.

Achieving Russia's inflation target of four per cent will require “a prolonged period of maintaining tight monetary conditions in the economy”, it added. In a press conference after the rate decision, central bank governor Elvira Nabiullina said that future rate hikes were possible.

“If the pro-inflationary risks that we are noticing materialise, we may need to raise the rate,” she told reporters.

“Our current view is that monetary conditions are sufficiently tight, but if it is necessary, we are ready to raise the rate.” A recent thaw in ties with the United States under President Donald Trump has raised hopes in Russia that Western countries will lift sanctions imposed on Moscow over its three-year Ukraine offensive.

But Nabiullina pushed back at the suggestion, saying it was “premature to speculate”.