Investing.com -- The Bank of Russia held its key interest rate at 21% on Friday, contrary to economists' expectations of an increase to 23%. This decision marks the highest level since the full-scale invasion of Ukraine began in early 2022.
The central bank made this unexpected move as it continues to grapple with a surge in inflation, triggered by the redistribution of resources and manpower to support President Vladimir Putin's invasion of Ukraine.
The central bank attributed its decision to a faster than anticipated decrease in credit demand. "We are seeing a marked slowdown in lending," stated Gov. Elvira Nabiullina.
Despite this, Nabiullina did not rule out the possibility of a future rate hike if inflation continues to climb, including at the bank's meeting in February.
In contrast to the slowing price increases in other parts of the world and decreasing interest rates, Russian inflation has seen a resurgence this year.
The government's increased commitment of resources and manpower to its ongoing military operation in Ukraine, which started in February 2022, has contributed to this inflationary trend.
In November, consumer prices were 8.9% higher than the same month a year ago, a significant increase from the previous month and well beyond the central bank's target of 4%.
As the government plans to boost military spending in 2025, inflationary pressures are unlikely to ease in the near future.
After an initial substantial increase following the commencement of the invasion, the central bank gradually lowered its key interest rate to a low of 7.5% in mid-2023 as inflation began to cool.
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