Russian central bank makes dramatic rate hike

The key rate has been hiked by 1 percentage point to 8.5% due to “inflationary pressure”

The Bank of Russia has raised its benchmark interest rate to 8.5% amid rising inflation, the central bank announced on Friday.

The key rate has been hiked by 100 basis points from 7.5%.

The regulator cited rising inflation and a weakening ruble as the reasons for the move.

“The rising domestic demand exceeds production capabilities, partly due to the limited workforce, which in turn increases inflation pressure on the economy,” the regulator said. The consumer price index is expected to be between 5% and 6.5% this year.

The Russian currency has been weakening since the start of the year, which also adds to inflation risks, the central bank said.

READ MORE: Russian Finance Ministry warns of rise in national debt

It’s the first change in the interest rate since last September, when it was lowered as inflation was slowing down. The regulator had left the rate unchanged for several consecutive meetings since October.

Further hikes are possible in a bid to stabilize inflation at around 4% next year, the regulator added. The next meeting of the central bank is scheduled for September 15.

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