Russia raises rate to counter bans

MOSCOW, July 26 (AFP): The Russian central bank moved on Friday to shield the country's economy from tightening Western sanctions over Ukraine, raising its main interest rate in a bid to forestall a resurgence of capital flight.
The Bank of Russia surprises with a decision to raise its main rate by half point to 8.0 per cent.
It said that "inflation risks have increased due to a combination of factors, including, inter alia, the aggravation of geopolitical tension and its potential impact on the rouble exchange rate dynamics."
The increase was the third since March as the central bank began to tighten monetary policy when the Russian economy was buffeted by the uncertainty generated by the Ukraine crisis and Western sanctions.
"If high inflation risks persist, the Bank of Russia will continue raising the key rate," it added.
Analysts polled by Interfax news agency had expected the Bank of Russia to hold its main rate steady as last week data showed that annual inflation had slowed by a tenth of a point to 7.5 per cent.
The central bank said that that drop which was smaller than expected highlighted the "geopolitical risks" to higher inflation.
Neil Shearing, chief emerging markets economist at London-based Capital Economics, said that although the central bank justified its move by inflation risks "it's pretty clear that this is a pre-emptive move to limit capital outflows ahead of possible new sanctions by the US and Europe."