By John Meyer, financial consultant – Eurasia Business News, February 11, 2022

View on the Leningradskiy Avenue, in the centre of Moscow, December 2021.

Photo credit : Swann Collins.

On Friday 11 February, the Board of Directors of the Bank of Russia decided to raise the key rate by 100 basis points, to 9.50% per annum.

This move was expected by the market. Some analysts did not rule out both more cautious (up 50-75 bp) and more decisive moves (125-150 bp), but it was the 100 bp forecast that was the baseline.

Now the key rate has reached a record level since the end of April 2017. Then it was 9.75%, in early May it was reduced to 9.25%.

“Inflation is developing significantly higher than the October forecast of the Bank of Russia. The expansion of demand continues to outpace the possibility of increasing output. The rapid growth of economic activity with limited free labor resources increases inflationary pressure” said the Russian central bank in a statement.

The regulator also notes that the conjuncture of world commodity markets remains pro-inflationary, while inflation expectations are not decreasing yet, remaining at multi-year highs. 

“Under these conditions, the balance of risks for inflation has shifted even more towards pro-inflationary ones. The monetary policy pursued by the Bank of Russia is aimed at returning inflation to 4%” said the Bank of Russia.

The Russian central bank doest not rule out a further increase in the key rate at the next meetings if the situation develops in accordance with the baseline forecast.

The regulator is tightening monetary policy (MP) to bring inflation back to the 4% target. It crossed this threshold at the end of 2020, when the key rate was at a historically low level of 4.25%.

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“Decisions on the key rate will be made taking into account the actual and expected dynamics of inflation relative to the target, the development of the economy over the forecast horizon, as well as the assessment of risks from internal and external conditions and the reaction of financial markets to them,” said the Central Bank in its statement.

“According to the forecast of the Bank of Russia, taking into account the ongoing monetary policy, annual inflation will decrease to  5.0–6.0% in 2022 and return to the target in mid-2023. In the future, annual inflation will be close to 4%“, forecast the bank regulator.

Annual inflation in Russia increased to 8.7% in January (after 8.4% in December 2021). As of February 4, it was 8.8%, reported the Russian central bank.

On January 14, the Russian Federal Minister of Finance Anton Siluanov said that the peak of inflation, which at the end of 2021 amounted to 8.39%, had been passed in Russia.

On February 9, Rosstat, the Russian statistics federal agency, reported that in January, annual inflation was 8.73% – a record since the same month in 2016. 

This is the eighth increase in the key rate in a row. The last one was on December 17, 2021, when the Central Bank also increased the rate by 1 p.p. up to 8.5% per annum.

The growth of the key rate over the past 12 monts :

March 19 – by 25 basis points, to 4.5%;

April 23 – by 50 basis points, up to 5%;

June 11 – also by 50 basis points, up to 5.5%;

July 23 – by 100 basis points, up to 6.5% ;

September 10 – by 25 basis points, up to 6.75% ;

October 22 – by 75 basis points, up to 7.5% ;

December 17 – by 100 basis points, up to 8.5% ;

February 10 – by 100 basis points, up to 9.5% ;

High annual inflation in the United States (7.5% in January 2022), the Euro zone (5.1% in January 2022) and in Russia (8.7% in January 2022) drives the worries of investors and families. They are seeking hedge to protect their wealth and purchasing power. Following the rate hike of the Russian central bank on February 11, gold prices reached $ 1,862 per troy ounce, gaining 1.98% in one day ! Silver prices hit $ 23.65, gaining 1,99%.

Read also : Gold, Build Your Wealth and Freedom

On February 10, gold prices hit $ 1,827 per troy ounce today, gaining 1.05% in one day, while silver prices reached  $ 23.19 per ounce, gaining 2.98%.

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