The Bank of Russia raised its benchmark rate by a bigger-than-expected 200 basis points on Friday as inflationary pressures moved significantly above expectations.
The board of directors headed by Elvira Nabiullina decided to lift the key rate to 15% from 13%. Markets were anticipating a 100 basis point increase.
The bank has raised the policy rate by 750 basis points over the last four meetings.
The board said the decision will accelerate the formation of monetary conditions needed to ensure balanced growth in lending and steady disinflationary trends.
Policymakers observed that persistently elevated inflation expectations and their further increase pose a significant risk.
The increase in domestic demand outpacing the economy's supply expansion capacity has intensified underlying inflationary pressures.
Inflation is seen between 7% and 7.5% in 2023. Given the current monetary policy stance, inflation will fall to 4% to 4.5% next year and stay close to 4% further on, the bank said.
The forecast implies that tight monetary conditions will be maintained in the economy for long.
Although policymakers seemed to signal that the tightening cycle is at an end, inflation pressures will continue to build in the coming months and that another rate hike next year still looks likely, Capital Economics' economist Liam Peach said. The economist forecasts another 100 basis point hike in the first quarter of next year.
