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Bank of Russia explains interest rate hike

A low key rate on the back of high inflation will not result in lower interest rates on the market, Central Bank chief Elvira Nabiullina said on Friday after a Board meeting.

"It is impossible to assume that if we have a low key rate and high inflation, rates in the economy will go down because of that. It will be quite the reverse because inflation expectations, inflation premiums will grow, and so on," Nabiullina noted.

The cost of borrowing is driven by the level of inflation and inflation expectations, she informed. "The key rate and interest rates will be high if inflation is high and inflation expectations are not anchored. Nevertheless, the cost of financing will decrease when steadily pursuing the monetary policy targeting price stability," Nabiullina added.

The Bank of Russia lifted the key rate to 8.5% per annum earlier on Friday, as inflationary pressure was mounting.

[Source: Tass, Moscow, 21Jul23]

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