MOSCOW: The Russian central bank raised rates for the first time since late 2014 on Friday and promised not to buy foreign currency on the market until the end of this year end as it acknowledged risks of the weaker rouble and US sanctions.

The central bank raised its key interest rate to 7.50 per cent from 7.25pc, bringing it back to its level in March and indicating a rate cut is unlikely on a one-year horizon.

Governor Elvira Nabiullina said the decision to raise rates was designed to limit risks of higher inflation, driven by the rouble volatility and the planned increase in value-added tax from the next year.

“Today’s decision is the response to the increased inflationary risks,” Nabiullina said.

Further rate hikes could not be ruled out but the latest rate move is not necessarily the beginning of a monetary tightening cycle, Nabiullina explained.

To curtail exchange rate volatility and its influence on inflation over the next few quarters, the central bank also decided to extend the pause in purchases of foreign currency for the finance ministry’s reserves by the end of this year from the earlier deadline that had been set for the end of this month.

The central bank used to buy around $300 million a day last month before it suspended these purchases to limit losses in the tanking rouble, which shed around 10pc in the recent sell-off wave that started in early August.

“Geopolitical factors have changed in August, an uncertainty around sanctions against Russia has increased,” Nabiullina said.

The rouble firmed to 67.46 versus the dollar after the central bank’s move, its strongest since Aug 31, heading away from the more than two-year low of 70.60 it briefly touched earlier this week.

Analysts polled by Reuters had mostly expected the central bank to hold the rate at 7.25pc, as it had done at three previous board meetings, but had not ruled out the possibility of a rate hike either.

Published in Dawn, September 15th, 2018